So what rate interest rate are you getting

Which is a big difference

Cheers

Jamie

Hi All,

Just got 6.9% variable through investec with 6.39% 3 yr fixed or 6.40% 2 yr fixed.

Regards

Maurice

Hi Corie

Here's a recent blog entry which explains how Interest Only with offset works.

Cheers

Jamie

Redraw – you pay down some of the loan and take these funds back out. That's "redrawing"

Offset – is like a savings account linked to your loan. If you have a $10 loan and you put $1 in your offset account – you would only pay interest on $9

Difference between the two.

Redraw – when you "redraw" those funds, they won't be tax deductible if they are not being used for investment purposes. i.e If you "redraw" $20k from an IP loan and buy a car than that $20k won't be deductible.

Offset – it doesn't matter what you use the funds for. If you had $20k in your offset account and decided to use that money for a car – then you take the $20k out and your tax deductible interest repayments go back up.

It's a very simple explanation but there's no point in complicating things.

Cheers

Jamie

If you take the $20k out of your offset account – the interest repayments on your loan will increase. If that loan is securing an investment property then those funds will be deductible.

Cheers

Jamie

I really cant see any difference between the offset Jamie is talking about and my CBA redraw.

Hi,

The offset and redraw problem has been talked about quite a bit in another post…but i will summaries and provide an example for clarification.

PB, all i can say is, your lending manger either doesn’t know the difference OR doesn’t want to offer you the offset account/product as it is a dis- advantage to the bank ( Ie the lending manger WORKS for the bank and the Bank’s profit!)

—Are you sure there is a difference?—

* If there was no difference why would 2 product be offered
* There’s normally a annual of monthly fee attached to the package which is the one that offers a offset account ( not all banks, but most)
* redraw is offered on ALL product type ( excluding fix etc..) Offset is NOT offered on all product type + sometimes there is a min loan amount as well.

The reason why ppl think re-draw and offset has no differences is because it’s “function” in term of lowering the interest rate is essentially the same…and that’s all ppl really look and care about. So really they BOTH lower the interest rate at the same amount and in simliar ways BUT here are the differences…

—-Differences–
1. Control – With a redraw the bank has control over the funds, end of the day your “re-borrowing this fund” as your loan will increase. Compared to an offset the funds are YOURS! you decide when you want to spend it and on what.

2. Tax- With a redraw the home loans and the “re-draw” amount is all combined into one account “the mortgage” ….but with an offset you have your mortgage + a separate linked offset account; this allows you to separate the funds for difference purpose if required.

http://law.ato.gov.au/atolaw/view.htm?locid='TXR/TR936/NAT/ATO

Explains how redraw can cause contamination etc…( more about this in the example below)

3. Safety buffer -say you lose your job and needs funds to continue with the mortgage OR to pay some bills off, if the bank can see you missed a few payment the chances they will release your re-draw is 50:50…however with an offset since it’s your funds you have the ability to use the funds towards mortgage and any purpose.

—Example—-

Mr and Mrs Propertyinvesting lives at home and has a IP worth $300,000, they plan on buying a PPOR to live in very soon + get married and buy some shares.

1. Redraw—- You have a $200,000 Investment property Mortgage with $50,000 cash you decide to chuck this cash into the mortgage…so the mortgage is now $150,000 ( + 50,000 redraw) – you pay % on the $150,000 and the % is all fully tax deducible …2 years later…

You find your PPOR and decide to redraw the $30,000 out for deposit towards the PPOR —- your initial mortgage is NOW $180,000 BUT only 83% is tax deducible ( 150/180) SO now when it comes to tax time you need to work out the % for every split and every % repayment. Might sound simple…but lets add the MARRIAGE cost into this + cost to buy shares??? ( some tax deducible so not) — WILL GET MESSY

2. Offset– SAME EXAMPLE. $200,000 Mortgage with $50,000 Cash in the offset account…you still only pay % on the $150,000…but the “mortgage” amount does not change it remains at $200k. When you use the funds from the offset account it does NOT affect the mortgage “amount” and the tax deducibilty remains intact.

—Note—-
How you tell if your account is an offset or redraw, it will say when you go online and go to “more information/ accounts details” the page where it tells you your % and “years” left…if it doesn’t say Offset then you most likely don’t have one…for a re-draw it won’t say anything because Most account have an redraw.

NAB- it’s on the statement on the right hand side ( it should say 100% offset Choice package)
CBA- they call it a MISA account (also the misa is slightly difference to the traditional offset accounts…)
Westpac- Rocket

Most offset are part of a package only, in which you have a ongoing fee. But note EVEN if you are on a package this does not mean you have an offset account, as you need to request for this offset account.

Regards
Michael

yes you need a misa account.

6.86% First Mac

interest only with fully transactional 100% offset account