Offset VS Redraw For Property Investors

Having the right loan structure when purchasing a property is imperative, whether you are purchasing a main residence or investment.  Here is an explanation of the difference between an offset account and a loan redraw facility.

An offset account is actually a separate account linked to your mortgage in such a way that the balance of the account is used to reduce the interest payable on your mortgage.  So, by putting all available cash in your offset account, you are reducing the interest paid on your loan (and increasing the principal component of your repayments).

A redraw facility is where you make higher repayments, or deposit lump sums, to reduce the amount of your loan and therefore the interest payable.  The redraw facility is the ability withdraw these additional payments at a later stage.

For most people the choice of one or both of these facilities is likely driven by rates and fees but if you are borrowing for an investment property (or potential rental property) then you should also consider these facilities from a tax perspective as the advantages and disadvantages can substantial.

I will be following up with more details and some examples of how each facility works and how it can benefit you financially, and more importantly, from a tax perspective.

Bec Mackie, Partner, Paris Financial