I am in process of looking for a Home loan and just wanted a little clarification regarding account with offset versus an account with online redraw facility. I am specifically an ING home loan with variable rate of 4.98 % with offset facility Vs Bank west online home loan account with variable rate of 4.88% but no offset facility but an online redraw facility. Bank west home loan specialist assures me that this is not that different to offset account as it will be linked to a everyday transaction where i can get our salary deposited and move the money to home loan account and move it back to transaction account to withdraw money or pay bills. I guess it will be kind of like my ME bank setup with a home loan account rather than online saver account. I know it will be a bit inconvenient but i guess for a tight ass ozbargainer like me saving .1% on my home loan is worth a little bit of inconvenience.
What i wanted to ask you experienced folks of ozbargain is there else to consider in this situation. Also any one else had an experience of home loan with Bank West. Any help will be much appreciated
Offset Vs Online Redraw facility
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"redraw" any excess repayments - check min amount, frequency.
"offset" effectively pays you 4.98% interest on your transaction account balance (calculated daily ?) & tax free.Redraw usually have a time issue, which in this case doesn't, and a minimum limit, and maybe someother limits like once per month.
Otherwise pretty much the same.
In this case its seems like there is time issue or minimum or maximum limit. Below is from their website and also been confirmed by their home loan specialist
You can access your full home loan transaction details in Bankwest Online Banking and withdraw any additional funds at any time for free with our online redraw facility
http://www.bankwest.com.au/personal/home-loans/home-loan-pro…
The only thing to watch with a redraw facility is if you decide to rent the place out down the track: interest on money you've paid off and then redrawn may not be tax deductible, while with a proper offset account my limited understanding is you haven't paid it off as far as the ATO is concerned so you can, say, use the money to pay down a loan on your new principle place of residence.
Yep, that's pretty much it. Best description of it is here. http://mortgageexpertsonline.com.au/_blog/Mortgage_Experts_B…
Thanks for the Link BackPaqer, its very informative
I read that article and I'm none the wiser. In the example given therein, you have a $700,000 loan and put $200,000 into an offset account. The author explains, "then potentially the interest on the full loan balance of $700,000 could be claimed going forward." But since the bank will only be charging interest against the un-offset $500,000 balance, not against the full balance of the loan, how can you then claim the uncharged interest up to the $700,000?
Thanks a lot 'daffyd' redraw not being tax deductible in certain situation pretty much settled it for me.I would not have thought of that with out you pointing it out.
THIS..
I wish this had been explained to me when applying for my first loan.
I went the redraw route thinking they were effectively the same (which they are in every other respect) and as a result, had to sell my first home when I upgraded instead of keeping it as an investment.
VERY, VERY annoyed (at myself, at my first broker - who didn't get my business for the second time - and at the ATO for making such a stupid ruling)!!!Can't you restructure the loan or something else if you accidently set it up as redraw and have put excess $ into it? Isn't there any way out of selling the property to get right again?
You can redraw the money, but unless you use if for further investment you can't negatively gear any redraw you make.
ie ideally I'd have redrawn to put that money into my Home Mortgage to reduce interest I pay, but that's not an investment, so I could only negatively gear the outstanding amount of the loan, which in my case was only about 10k (which amounts to minimal gain) and overall I calculated that I'd be far better off selling to cut my house mortgage in half than owning 95% of an investment property outright during (what I think will be) a period of slow capital growth.Yeah for same reason, I have to refinance approx. 2 yrs before my planned upgrade, to avoid being seen as refinance to buy my new primary residence.
Good point, I will refinance to 90% of my house valur this time just to maximise negative gearing benefit. Well on second thought, if I refinance to 90%, this will give my away intention.. Any thoughts?
Have you considered selling your current house?
I do not agree this is wrong. I had offset previously and all I am trying to do is to get the offset back, after having redraw for approx. 8 months. I do like then convenience of offset.
The main purpose is to get an offset account. In order to avoid being seen as having other intention, I have to do it earlier.
Thank you for your advice. I still believe my planned refinance is a both commercial and a life style choice, as I will get a lower rate and more convenience. Just like last time when I gave up offset to refinanced to UBank.
It is not a scheme for tax avoidance. That's sufficient to justify my cause of action.
Offset is slightly different to redraw
I'm not sure how BW treats its offset, but quoting you
You can access your full home loan transaction details in Bankwest Online Banking and withdraw any additional funds at any time for free with our online redraw facility
http://www.bankwest.com.au/personal/home-loans/home-loan-pro…the key word is 'additional' funds - the thing is, most banks will calculate what the 'additional' funds about 2-3 business days after your repayment cycle… i.e. you may whack in $2.5k into your account, with a monthly loan repayment of $2k. You won't be able to access that $500 until AFTER your weekly/fortnightly/monthly payment cycle, where the bank knows what 'additional' amount you paid in. Thats how St George / Westpac do it on the extra money we deposit… its not avaialable for redraw until the next month. It may be different with these banks
We use an offset to drop our salaries in (interest is 'earned straight away'), and all our payments come out, but we put our 'savings' into our homeloan account which has free redraw (via online/phone banking), so when we go to europe, we'll just redraw off that.
Also - most redraws require 1 business day to process, but again, this bank might be different. Offset means you have access to your cash right now.
Excuse me for being naive,… Why not just place all ur savings in the offset instead?
Offset for sure. For tax reasons and your convenience
isnt offset and redraw two different features of a loan package.
You'd want both of them.