Attempt to create a home loan buffer into your home mortgage by making extra monthly payments anytime you can. This will give you some flexibility if you do find yourself in short term difficulties. You can do this either by means of making extra repayments, or saving extra cash into an offset account.
A redraw facility on your home mortgage means that you can pay in extra money into the home loan, usually in the form of greater ongoing loan monthly payments which you can withdraw again when its needed.
To put it simply, instead of earning (taxable) interest in your savings, putting your savings in the mortgage will save you money on your interest fees and helps you repay your home loan a lot quicker. Meanwhile, you are still saving money for hard times. The advantage of this kind of loan monthly interest charged is generally cheaper compared to a standard variable rate and it does not incur regular fees.
Some, but not all, lenders charge a fee to use the redraw feature and/or a charge any time you redraw, therefore these types of costs need to be taken into account. As a result, it’s probably best implemented as a option in order to save funds for a large future purchase, like a new family car, family vacation or perhaps building work, rather then accessing money from it all the time.
These types of loans are suitable for low to medium salary earners who will set aside that bit of more every month.
With an offset account, the balance is going to be offset against your mortgage loan. Earnings is transferred into your Offset Account so you use the Offset Account for all your EFTPOS, cheque, internet banking, and credit transactions. Whatever is in the Offset Account after that will come straight off the mortgage, or 'offsets' the mortgage amount for interest.
As an example, should you have $10,000 in your offset account against your $300,000 home loan; you actually pay just interest earned on $290,000. The more income you retain in the offset account, the extra interest you save on the loan. In effect you are generally not earning interest earned on your savings, but are generally benefiting as what would be interest on savings is actually calculated on a decrease on your home loan.
Your offset account may also be used because a savings account for a major purchase, or is often used by people to ‘park’ cash which they might need to readily obtain down the road - as an example, a couple starting a family some time in the next few years might take a look at this option.
These types of loans are suitable for people on medium to high income earners, as well as disciplined spenders as the extra funds put in the offset account the sooner you pay-off your loan.
To read more on how a redraw facility or an offset loan could benefit you, contact our fully qualified and expert home loan team at Central Coast Mortgage Brokers, they can help to find you a mortgage loan which includes a great low interest rate, and also fantastic loan features and benefits.
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