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Welcome to the finance update for the week ending 8 April, 2023.
At last, a reprieve from the RBA this week as they chose not to increase the cash rate again. Given recent data shows that inflation had in fact slowed over the last month, and that there were considerably fewer jobs being advertised than in previous months, it would have been very brave of them to increase the rate this time around.
We received news this week that we have been selected by the broking industry’s peak body, the MFAA, as finalists in their prestigious State Excellence Awards for 2023 in the category of Customer Service. We’re so proud of our track record for customer service, we believe it is the backbone of a great broking business, so this kind of recognition is really important to us.
In this week’s newsletter, we look at the differences between loan’s that have an offset account compared to loan’s that have a redraw facility. It’s a really important consideration for borrowers so don’t hesitate to put your clients in touch with us if they have any questions about the nuances of these two loan types.
Redraw facilities and offset accounts have many similarities. But there are some important differences too.
The Similarities
Both offset accounts and redraw facilities:
- can help reduce the amount of interest you pay on your home loan
- can help you pay off your loan earlier
- are generally available on most standard variable loans.
The Differences
An offset account is a separate deposit account. You can have your salary deposited into it and you can transfer money in from other accounts. If you want, you can use an offset account for everyday spending like groceries and bills by using a debit card.
By contrast, a redraw facility is not a separate account but a feature attached to the loan. It allows you to draw back additional payments you have made on the loan. A redraw facility may not be as flexible as an offset account. For example, there may not be an option to redraw money from an ATM or transact using a debit card. Some lenders may set minimum redraw amounts.
There may be different tax implications with using ya redraw feature and offset account if you decide to rent out your home in the future. If you decide to rent out your home as an investment property, the interest charged on the loan may be tax deductible. But you may not be able to claim any portion of the loan you have redrawn from your redraw facility for non-investment purposes like a holiday or a private car.
On the other hand, withdrawing amounts from your offset account won’t affect the tax deductibility of interest charged on your loan. If there is a possibility that your first home could one day become an investment property, we suggest you seek financial advice on the best way to reduce interest on your loan with using a redraw or offset account.
Remember that everyone has their own spending and saving habits. What works for one person may not work for everyone.
Any changes in interest rates from last week are highlighted in orange.
Note – Increases announced by lenders as a result of RBA decisions normally take 1-2 weeks to come into affect.
Standard Variable
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.
1 Year Fixed
The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.
