PAY LESS INTEREST On Your Home Loan! Offset vs Redraw Facility Explained

Redraw Facility vs Offset Account Explained 🤔
Property Investing In Australia Is A Game of Finance 🧮
You may be paying too much interest on your home loan! 🛑
Offset Account Pros:
- liquidity / control
- no approvals required
- no minimum amount you have to redraw or fee
- no tax implication, you loan is still deductible
Offset Account Cons:
- poorer rates
- redraw not considered an asset
- sometimes offset accounts come with an annual charge
- sometimes you can’t offset 100% but with redraw you can
0:00 - Introduction
1:07 - Difference between Offset and Redraw accounts
2:12 - Pros of Offset and Redraw account
5:41 - Cons of Offset and Redraw account
8:35 - My recommendation
9:28 - Conclusion
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DISCLAIMER: No Legal, Financial & Taxation Advice
The Listener, Reader or Viewer acknowledges and agrees that:
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[@AusPropertyMasteryWithPK]

❤ JOIN THE COMMUNITY & GET FREE SUBURB TIPS + STRATEGIES 💡 Private Facebook Group With Over 40,000 Clients & Investors 👉 facebook.com/groups/passiveincomethroughproperty 💡 Top Ranked No "BS" Podcast On Spotify/ iTunes/ Google 👉 consultingbypk.com.au/podcast/

[@digitalnomad87]

Hey PK, thanks for all the awesome videoes, keep em coming !! On a side note, if you are looking to interview anyone next, an idea would be to interview one of the sales agents( Probably not too dodgy ones but who still sell stocks) and ask all of you super logical and "relevant" questions which they ll struggle to answer( Loved one of those podcasts of yours with BAs lol ). It might save many who are or going to be their prey or victims next.( Including myself). Cheers

[@MATTHEW12944]

I am paying additional .25% interest and $395 for my offset account. If you know you will never use the home for an investment you don't need to worry about the tax disadvantage of a redraw account.

[@kailicen5459]

OMG, I am so glad that I found this video today! I have a Redraw account for 3 years now, and I have always wonder what is the diff against Offset account (had done some research earlier on by never get a clear understanding till I watch this video). After watching your video, i now understand Redraw acc is actually the right product for me due to not having a lot of spare cash, but will look for offset options when i get my next place, thanks heaps!

[@DC180]

My redraw is easy to get out. basically you transfer it through the app.. The difficult part is not to spend the extra money that's in it. And that 100 bucks you take out isn't extreme, thats exactly what I'm doing

[@nassimakhbari1465]

Thanks for the info. I'm looking to refinance. Would you mind sharing which bank/product you're using?

[@DC180]

@nassimakhbari1465 All banks have a redraw facility and you use the banks app.

[@user-vv5ww2pm2t]

I didn't understand the tax implication on an Offset Account vs Redraw facility properly, it might be just me. But I'd appreciate a better explanation with examples perhaps?

[@november132]

I had cash in my redraw account and realized that the bank added that balance to my mortgage, meaning my cash and the loan was what they were charging me interest on. Somehow putting money in my redraw account increased my payments. Also it would cost me even more to withdraw. In the end it was better to just transfer the redraw balance to the mortgage balance and lower the overall loan amount.

[@Athiarnadeantrocaire]

Hi Pk, just wondering if you might do a video on how to keep a good credit rating while buying multiple properties? Thanks!

[@AusPropertyMasteryWithPK]

Great suggestion!

[@suzannenuon3857]

Thank you so much PK for this content. It has helped me out so much.

[@AusPropertyMasteryWithPK]

I’m glad

[@tailtaptailtap]

I like the honesty, but it would be good to hear the detail in terms of legislation etc

[@dpaudel7639]

Great content. Thanks for this insightful video. Waiting another video on: Pros and Cons of Duplex property (one for investment and one for living ).

[@AusPropertyMasteryWithPK]

I’ve done one before! Please search it :)

[@susmusmanoj112]

PK. The outro music while u speak is amazing…❤ I have noticed u reply to all comments …hats off ..the other buyers agent KZbinrs give u a 100% ignore every time (u know who am I talking about..😅😅) Lastly can u make a video on loans based on equity. Everybody says ‘take equity’ for ur next deposit, but nobody mentioned that’s another LOAN 😢😢. So if I buy a house worth 480k - in which 400 would be loan and 80k from equity, in theory I will now have 2 loans for this ? Am I right? 400K normal loan + 80 k equity loan. So layman terms whole house of 480k on loan 😨😨. How does thing work ? There is no video on KZbin explaining how these TWO LOANS actually work on paper…😢😢😢😢

[@AusPropertyMasteryWithPK]

Hey thank you. I’ve done this previously! Use search term equity and my name hopefully comes up

[@Tasice08]

Thanks for the explanation.

[@Malakaih1002]

I would suggest that another positive of redraw / negative of offset is actually the ease of access to your money. I’m referring to those in the situation where they may have problems with impulse spending or something. Having an offset sitting there with 20K, may be tempting. Otherwise, 100% agreed. This is just basically the downside of having that money readily available. Great content PK.

[@AusPropertyMasteryWithPK]

Good one!

[@rakeshright3371]

would I be right in saying i would need a redraw account if i were to recycle the debt on the PPOR to buy investment property?

[@tshwolf]

brilliant talk!

[@DR-tx1ro]

Quick question, In terms of earning interest, let’s say I have $100k in a redraw on my home loan. I’m not earning interest on it? But if that $100k was in an offset account attached to the loan, then i’m earning regular interest and that $100k is growing and offsetting my loan much more over time?

[@FruitypantsMcNutz]

Redraw is definitely better for me. The amount I offset is relatively small - my buffer plus body corp fees and rates - so the annual fee and higher interest rate of an offset account is a disadvantage. Also, because the amount I offset is small, when I need to move it, it fits into a regular daily withdrawal allowance, so that part about having difficulty accessing seems to not be an issue. Also no fees on my redraw. Even when I had a $25 fee per redraw in the beginning, it was still a better option for me than the $350 annual fee of the offset account

[@robbieurquhartmusic6847]

Hi PK, thanks for the content! Can I ask your opinion? Considering the higher interest rates at the moment, wouldn’t it be better to keep extra cash in a high interest savings account and benefit from the cash flow from interest return? Also considering that the interest on a rental is tax deductible. Thanks for your time, Robbie

[@AusPropertyMasteryWithPK]

@@robbieurquhartmusic6847 hey I did a video on just that in march!

[@nader89]

As we know, bankers' customers are people hoe get loans. My question is what are the advantages for bankers to create these types of accounts? (Offset account). there should be a reason against the Redraw account.

[@nassimakhbari1465]

Graeme Holm has some amazing podcasts/webinars on this

[@brett2138]

Am I right in saying when you come to claim you interest at tax time it doesn’t make any difference if you have 100k in an offset or redraw. Both reduce interest payments. Example loan 500k offset 100k you pay interest on 400k Loan 500k redraw 100k you pay interest in 400k. You’d be paying the same amount of interest and claiming the same amount at tax time is that correct ?

[@AusPropertyMasteryWithPK]

Correct

[@Inbarreto]

What if you have 3 properties, one with offset and 2 with redraw and you put all your savings into the offset to save on interest rate on the other 2 properties that don’t have offset and the interest rate is lower ?

[@lxyflysky]

great explanation

[@helen-ch3fn]

Hi PK just wanting to clarify something. If i have $500k investment IO loan and $100 in offset acc, at tax time I would only claim the interest paid on the $400k? How is this an advantage as normally higher expenses are good when doing incoming/outgoings on a investment property at tax time? Thankyou for your advice

[@splaterpus23]

Would love a video about pros and cons on solar on investment properties and your personal opinion

[@spiffleable]

Why would you pay for someone else's electricity bill

[@splaterpus23]

@@spiffleable have a few friends that did it as it increased their house value, it's tax deductible and also they charge extra rent to as a fee for free power and they make more then the repayments

[@Gozna007]

Thanks a lot for the info.! It's given me clarity. But would having money in offset account boost your borrowing capacity?

[@AusPropertyMasteryWithPK]

I don’t believe it does

[@olexandralistopad445]

No

[@Lavidavi_]

I have question regarding if my original loan balance is 300k and current loan balance is 200k due to I have 70k in my offset and 30k in my redraw balance. Now, I want to refinance this loan with other lender in this case what loan amount I will use either 200k or 230k (loan balance plus redraw) or 300k (loan balance +redraw +offset)? If we will use only loan balance + redraw then offset account still we can use after the home loan account or bank will automatically close this account as well.

[@marmalade9341]

Thanks for sharing, had no idea that the off-set you cant off-set 100% of the amount...

[@AusPropertyMasteryWithPK]

In many cases you can, but not all

[@unclelive6918]

Do you get tax in some way or form when using the redraw money ?

[@d.j.z.j]

We did weekly payments from monthly

[@pppatel177]

Hi PK Could you please let me know if I do loan repayment weekly instead of monthly can I pay my mortgage faster? Or does it work the same if I keep that money in an offset account and pay monthly

[@shaktisingh418]

Hey PK, great content! Does redraw loan option will reduce monthly instalments?

[@CrAzYNooBB55]

Big long term fan of yours PK always watch your content religiously. Advice on investing in Adelaide ? northern suburbs or north east for capital gain in your opinion ? Cheers !

[@AusPropertyMasteryWithPK]

Thanks! Avoid Elizabeth!

[@officialspock]

When I bought IP, I don't have money left so I choose fixed interest rate, is that a good choice?

[@micah1754]

My redraw account can be accessed immediately without any approval up to the limit set. This confused me a bit - wonder if its a different type of product. Offset accounts with my bank westpac also have fees as far as I’m aware

[@Errordemn6]

I've never had to get approval to get money from my redraw account. I can access it immediately.

[@micah1754]

@@Errordemn6 I wonder what he's referring to here then

[@sagarvekariya13]

what's going to impact first home buyers after interest rates. is good idea to just buy a first property and put on rent ?

[@miss_mish]

Curious. How many properties do you have?

[@AusPropertyMasteryWithPK]

www.workwithjoshua.com/pk-gupta-net-worth/

[@dilipkonar6089]

Thanks PK . Great content. What about an offset account with redraw facility. Ie cash management account. pros vs cons?

[@joekeegan-yc4nm]

Nothin', maybe crickets...

[@ceotw3463]

Thank you ❤

[@digitalnomad87]

This came right on time, thanks PK :) So, for IP, assuming i have enough money in offset to cover entire loan amount but my min repayments is lets say 1800 dollars, that 1800 will go towards Principle? Assuming loan is PI. Thanks

[@198746779838]

Yip thats right.

[@fredsalfa]

I have 2 offset accounts. One as a spare as recently my debit card came that came off the first offset had fraud issues so I stopped everything which almost froze my offset. So now I have a spare offset with its own debit card if it happens again

[@pilagnes6356]

Worth blocking the card on the offstet account and have another one for spendings

[@sudhirmantha6339]

Am I right in saying with redraw account if i repay 100k of loan then my monthly repayments would decrease until I redraw it again? This could be beneficial during current times when interest rate is high so more cash is left in hand monthly?

[@AusPropertyMasteryWithPK]

Yes

[@massimilianomarrazzo2392]

PK, why do you say that an offset account is a separate account? You can make your existing account, from where you pay the loan instalments, also to work as offset account

[@AusPropertyMasteryWithPK]

only most cases it’s seperate

[@massimilianomarrazzo2392]

@Australian Property Mastery with PK Gupta ok, thanks. I have heard that one technique to maximise the amount of time for the cash to stay in the offset account, in order to reduce the interest to pay, is to use the credit card for the daily expenses, as the money that we use from credit card must be repaid only the next month. What do you think about?

[@AusPropertyMasteryWithPK]

@@massimilianomarrazzo2392 technically can work but lot of work to save not that much.. each to their own

[@alanblair88]

I think PK meant that the offset account is separate from the actual home loan account. You are correct, in some cases it might be an existing account that you were already using for everyday banking or some other purpose.

[@AusPropertyMasteryWithPK]

@@alanblair88 yep !

[@perminderjit1970]

Hi PK, lovely video. Just wanna clarify . If i have a one million dollar principal and interest loan for 30 years, by keeping 100k cash (10%) in the offset throughout, does that mean my loan will finish 10% earlier i.e. in 27 years? Thanks a million

[@ryanhuang3875]

Not really, the principal you repay every month does not change. It will still take you 30 years to pay off but the amount of the repayment goes to the interest is less. In 30 years , you will pay off your mortgage with all the money you saved on interest in your offset account. At some point, you can use the money saved to payoff your home loan early if this is what you want.

[@perminderjit1970]

@@ryanhuang3875 Thanx a million, brother...Now I understand. Much appreciated

[@shares163]

what if the redraw will be used for "Investment Purposes ONLY?"

[@AusPropertyMasteryWithPK]

Then it remains deductible

[@ConstructionHoney]

That assumes you have spare cash lol.

[@jordans3611]

Here's another great video explaining the tax implications if you use redraw and decide to convert your home loan to an investment later on: kzbin.info/www/bejne/oWmwiIOKmd5qmtk