Offset V Redraw - the tax difference
Tamara Gillman CFP?
Certified Financial Planner - helping people get ahead with their money, and reach financial freedom.
When we bought our first home, we knew it would become a rental property in the near future. And this is common- I’ll speak to many clients who would like to eventually upgrade and potentially keep their current home as an investment property. If this is you, you need to understand the difference between REDRAW & OFFSET!
And let me say that in this area, a great mortgage broker is also worth their weight in Gold.
Let me first start by telling you how they both work.
With a ???????????? ????????????????, you can make additional payments to reduce the outstanding balance of your mortgage, which in turn reduces the amount of interest you pay. However, you can redraw those additional repayments at some point in the future which increases the loan balance & the interest that you’ll pay.
An ???????????? ?????????????? works more like your day-to-day bank account. However the balance of the offset account is subtracted from the outstanding balance of your mortgage, and you only pay interest on this difference.
So which is the better way to manage your mortgage and minimise interest payments: redraw or offset?
If you’re planning to stay put in your current home, then it won’t make much difference. The end result is the same. Your mortgage broker is there to assist you with understanding what’s right for you.
However, let’s look at your future plans.... if you're going to borrow to invest, or purchase a new home to live in (whilst keeping your current property) then choosing between redraw & offset can have a significant impact on your tax bill.
Getting this right is so important, so ensure you seek professional advice to make the right decision. Your mortgage broker is also a great guide on this.
*General Advice Warning*
Any advice or information in this publication is of a general nature only & has not taken into account your personal objectives, financial situation and needs. Because of that, before acting on the advice, you should consider its appropriateness to you, having regard to your personal objectives, financial situation & needs. Past performance is not a guarantee of future performance.