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Borrowers save with offset and redraw

04/07/2012

Anyone with a redraw facility or offset account can, in effect, “save” by putting money on, or alongside, their mortgage. With a redraw facility, the money goes in as an extra repayment, with the ability to redraw.

An offset account sits alongside the mortgage. If it's a 100 per cent offset account, any money in the account is fully offset against your mortgage and you pay interest only on the balance left after that. So, for example, if you had a $350,000 home loan and $50,000 in the offset account, you'd pay interest on $300,000.

Because you continue to make your usual monthly repayment, the impact of extra repayments and offset deposits is that you pay your loan off faster. And because you're not actually earning interest, there's no tax to pay on those savings.

Source: Sydney Morning Herald



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