Benefits of using re-draw facility ?

[colin_hanley]

Hi, I've just been to see a mortgage broker. We went through the various options but they came so think and fast my brain has turned to mush.

He mentioned setting up a redraw facility for my mortgage. Where if I leave extra money in my account each month it will offset the interest. I asked him would this mean my payments would slowly come down, he said it wouldn't. So I'm a bit confused as to what he means by offsetting the interest but not affecting my actual repayments. Although,as I said my brain is mush so I could have confused myself.

Can anyone explain in simple English the benefits of using this redraw facility and leaving extra money in my mortgage account each month?
Thanks,
Col

 

[alexlee]

Is he talking about a redraw, or an offset? Very different things.
Alex

 

[colin_hanley]

Redraw, in which I put extra money into my account each month, rather than putting one large bulk somewhere (which is what I guess offset is about ??)

 

[Simon]

Offset and redraw both reduce your interest bill each month. If you have a P&I loan tghen the repayments stay fixed - you just pay a little bit extra principal and a little less interest each time. This will snowball.

Offset has some significant advantages over redraw for taxation benefits if you ever decide to rent out this home. Lets face it - first homes generally get outgrown and offset means you have the option of keeping it and transferring your paid down equity to a new home.

If you need more info just ask.

Cheers,

 

[colin_hanley]

Thanks for that Simon.

 

[Rolf Latham]

Hiya Colin

Both offset and redraw can achieve similar things except as simon said, where tax issues come to play.

think of redraw like a HQ 1973 Holden poverty pack with a 3 on the tree and and wall to wall vinyl , and offset as a 2006 Commodore

ta
rolf