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The Experts

Your Questions Answered

Maureen Jordan
Thursday, January 31, 2019

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Q. What’s the best — a loan with a redraw facility or a mortgage offset account attached to a loan? Lucy, Taren Point, NSW.

A. An offset account is an account linked to your home loan in such a way that it reduces the amount of interest you have to pay. With a mortgage offset account, you don’t earn interest on your savings but the interest on your savings is used to reduce the amount payable on the loan. Let’s say you have a loan at 5% and an interest rate of 5% on the offset account. If you had $50,000 banked in the account, the $2,500 worth of interest would be deducted off your total interest repayments. So if your loan repayments were supposed to be $20,000 a year, she would only pay $17,500. And because she doesn’t earn interest, there’s no tax slug. Clearly, these mortgage offset accounts work better the more money you have in them. Also you can take money out more easily, provided you keep meeting your monthly repayments. With a redraw facility, you can put extra amounts in but redrawing can sometimes have restrictions on them. Both a mortgage offset and a redraw facility mean that the extra amount you link to your loan reduces the principal owed before interest charges are calculated. Also, some lenders add on fees for these services so you might pay higher effective interest rates because of these extras.

Q. Are there any catches I should be aware of with low interest credit cards? Angie, Windsor, VIC.

A. The lowest credit card rate I could find was Nexus Mutual Low Rate Platinum Credit Card, which has an interest rate on purchases of 6.64%. The real rate is a little higher because there’s an annual fee of $49. If you transfer a balance of debt from another card, there’s a 0% charge for 12 months. Other catches are there is no interest-free period and a $10 late payment fee. You can’t use BPAY to make payments nor an ATM but you can pay on the phone. Oh yes, there’s a limit between $6,000-$8,000. Most of the information you need to make up your mind is available online. These cards don’t offer all the bells and whistles of cards that give you points for flying or buying ‘stuff’ but they do the job and the rate of interest is low compared to others that can slug you with a 20% plus interest rate!

Published: Thursday, January 31, 2019

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