Home Loan - Redraw

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  pantsparty on 15/08/2018 - 11:25

  Not sure if this is consistent across banks or not but it shouldn't be an issue after one or two months once you have a bit of redraw built up

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    ShortyX on 15/08/2018 - 11:27

    We'd like to pay as much as possible on the home loan though to reduce the interest. We use our credit card for all purchases and pay it off in full every month, but just don't want to be caught out with no cash.

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      pantsparty on 15/08/2018 - 11:29

      +1

      Just be careful for the first few months and after that you shouldn't have any issues as you will have some redraw built up in case you do need to redraw

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      HighAndDry on 15/08/2018 - 11:47

      +2

      An extra thousand or two in your home loan won't appreciably affect the interest you pay. Not having that thousand or so when you need it - to repay the credit card, or for emergency spending, will definitely affect you a lot more.

      Keep that thousand or so in cash in an account you can access without needing to redraw.

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        ShortyX on 15/08/2018 - 12:04

        Thanks - good advice.

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  Risser on 15/08/2018 - 11:32

  No.
  No fees, just a minimum withdrawal.

  I have experience with NAB and you can withdraw whenever. If it's not the weekend it's in your main account instantly. I use my redraw facility heavily to make large purchases for my side business.

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  zonra on 15/08/2018 - 12:11

  Can your bank do a mixture of fixed and variable home loans?
  That’s what I do with mine.
  For example if you need a 200k loan, and you know you may be able to pay up to around 50k extra in the next 2 year, then fix the 150k for 2 years at a low rate and have the remaining 50k in variable so you can pay more/redraw or link to an offset account.
  That way you have a majority of your loan at a lower rate and the ability to pay a big chunk off if/when you can.

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  miwahni on 15/08/2018 - 21:44

  Depends on your bank. That's exactly how St.George/ BankSA / Bank of Melbourne redraw works - the additional payments are held until after the loan payday (the day on which you'd make a monthly payment, if you were paying monthly)and become available to redraw after that. Devised to work that way because a lot of people pay weekly or fortnightly, and those payments are technically payments in advance as they're made before the monthly due date; if you could redraw them you run the risk of not having enough still in advance to cover the payment on its due date. That's a very simplified explanation of how it works.
  Where I work now, there's nothing stopping customers from making four weekly repayments before the pay date, then transferring those funds out again as they're available, and then promptly going into arrears when the actual pay day of the loan rolls around and the advance funds aren't there to cover. Not a good look.

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    ShortyX on 15/08/2018 - 22:11

    If there isn’t enough to cover the repayments, why doesn’t the bank just withdraw the difference from another account?

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  tabz on 16/08/2018 - 07:40

  One thing you need to keep in mind when switching from an offset to a redraw facility is if you ever intend to turn that home into an investment property down the line.

  If you're not familiar with this, let me explain.

  Scenario A: home loan with a remaining balance of $500k, and a 100% offset account with $100k.

  Scenario B: A home loan with $400k remaining balance and $100k available to redraw.

  In both scenarios you're only paying interest on $400k. Say you upgrade and want to buy a bigger house and turn this one into an IP. For scenario A, you use your $100k in the offset as a deposit and you are now paying interest on a balance of $500k. For scenario B, you redraw the available $100k for your deposit and are now paying interest on $500k.

  Sounds the same right? Here's the difference. Come tax time, you want to claim deduction on the interest earned from the investment property. In scenario A, you can do it on the whole interest earnt from the remaining $500k. In scenario B, you're only allowed to do it for interest earnt for $400k. So scenario A is better as you can deduct more, and get a better return.

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    onevstheworld on 16/08/2018 - 12:03

    Scenario B is worse than you describe.

    If OP withdraws any of that $100k equity for anything other than investment purposes, the whole 500k amount is not tax deductible. Accountants call that "contamination". Tax deductible investment money is mixed with non-tax deductible, and if there isn't a clear cut way to separate the two, ATO will declare the whole loan non-tax deductible.

    Best way to avoid that is to keep the money separate with separate accounts… i.e. an offset account.

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  ShortyX on 30/08/2018 - 09:54

  Just an update - didn't end up going ahead with the redraw option as we wanted to keep the flexibility and convenience of an offset. I asked for a payout figure from the bank as we were going to apply to ING (3.68%, offset, $299 package fee) and the cashback from the broker would have covered fees and provided some extra cash. The bank ended up matching the rate at 3.68% without resetting the term so decided to stick with them.

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    ShortyX on 30/08/2018 - 11:42

    And just saw the rate rises are coming in. Let's see what happens.

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  drup on 03/09/2018 - 23:23

  Can confirm no not all banks do this. It is a sign of a more inferior product.

  Although their justification is reasonable, other banks will not impose this on you.

  Good luck!