Latest / TFS WealthCast / Offset vs Redraw: The Differences That Matter

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Offset vs Redraw: The Differences That Matter · TFS WealthCast

0:00
SPEAKER_01: Dream big, plan small, build wealth.
0:04
SPEAKER_01: This is the TFS Podcast, where money talk gets real and financial freedom is more than just a goal.
0:12
SPEAKER_01: Without further ado, let's dive in.
0:17
SPEAKER_01: Hi guys, and welcome to another episode of the TFS Wealthcast.
0:22
SPEAKER_01: This is episode number seven, and today we're gonna talk about we're gonna deep dive into offset accounts and redraw facility accounts.
0:31
SPEAKER_01: We're gonna talk about who is it for, when to use it, and when it's not the best time, or when it's not the best strategy for you.
0:40
SPEAKER_01: We're gonna talk about the pros, we're gonna talk about the cons, and who better to answer all the questions we have than a man who's used it himself and recommended it to countless other clients.
0:54
SPEAKER_01: So, promo.
0:56
SPEAKER_00: Welcome.
0:58
SPEAKER_00: Thank you, thank you, thank you for having me again, again and again.
1:03
SPEAKER_00: I think we have to one of these episodes, we have to ask Sonali to come in.
1:07
SPEAKER_01: We need to get Sonali here, we need to get to get some new special guests.
1:11
SPEAKER_01: Yeah, uh we did have a special guest on episode number five, Doctor last episode.
1:16
SPEAKER_01: Last episode was the last episode uh episode before.
1:19
SPEAKER_00: Yeah, yeah, yeah.
1:20
SPEAKER_00: Yeah, yeah.
1:21
SPEAKER_00: That was a good one.
1:22
SPEAKER_00: That was a very good one.
1:22
SPEAKER_00: What did you guys talk about in that episode?
1:24
SPEAKER_00: Oh, we we we talked about uh we talked about uh Dr.
1:29
SPEAKER_00: Dilson's how he has got into you know uh sports science with another mate of mine, um partners in the business, and how the data is being used for high performance.
1:44
SPEAKER_00: I think we should be talking about it now.
1:45
SPEAKER_00: You know, if you want to hear uh uh want to listen to that episode, uh go to episode number five, season two.
1:53
SPEAKER_00: Um, it's a good one.
1:55
SPEAKER_00: All right, let's make this one a good one.
1:57
SPEAKER_00: Okay, done.
1:58
SPEAKER_01: So let's jump straight into it, Prabhu.
2:00
SPEAKER_01: All right, uh let's start with offset accounts.
2:02
SPEAKER_01: Okay, what is an offset account?
2:07
SPEAKER_00: So simple words, right?
2:08
SPEAKER_00: So look at it offset you're offsetting the interest.
2:13
SPEAKER_00: So when you have a home loan, yeah, the bank charges you on interest.
2:18
SPEAKER_00: So let's say, argument sake, we have a hundred thousand dollar uh uh home loan and the bank is charging you five percent, right?
2:27
SPEAKER_00: So you are paying five thousand dollars of interest.
2:35
SPEAKER_00: Am I correct with my numbers there?
2:38
SPEAKER_01: Yeah, yeah, yeah.
2:39
SPEAKER_01: Yeah, absolutely.
2:39
SPEAKER_01: I'm correct.
2:40
SPEAKER_01: I mean, even if you were wrong with your numbers, I'm not gonna say you were wrong, you know, in front of the camera.
2:45
SPEAKER_01: I don't want to lose my job, you know.
2:48
SPEAKER_00: I'm just joking.
2:49
SPEAKER_00: He's not one of those bosses.
2:50
SPEAKER_00: So so we got we got we got five percent on 100,000, right?
2:55
SPEAKER_00: Now that is what you owe to the bank, that is what you have to pay to the bank.
3:00
SPEAKER_00: Then let's say you have fifty thousand dollars in an offset account, yeah, or we call it savings account.
3:10
SPEAKER_00: Now that one also earning five percent interest.
3:15
SPEAKER_00: Yeah, so you're offsetting 100% of your interest that you owe to the bank with the the balance of your savings account.
3:26
SPEAKER_00: So that means you are now earning two thousand five hundred dollars from that savings account, an offset account.
3:35
SPEAKER_00: So now how much you owe to the bank now?
3:37
SPEAKER_00: You have five thousand that you owe as five percent, but the bank is bank is now owing you two and a half thousand dollars.
3:44
SPEAKER_00: So basically, you just have to pay the bank two and a half thousand dollars.
3:48
SPEAKER_01: So so basically, for someone, let's say someone has a$500,000 home loan, yeah, right?
3:54
SPEAKER_01: And they've they sold a car or whatever, and now they have$50,000.
3:58
SPEAKER_01: So instead of parking this in just putting it in a uh savings account and earning interest, if they put that in an offset account against their home loan, then they would reduce the value of the home loan by$50,000.
4:12
SPEAKER_01: That is the interest payable value.
4:13
SPEAKER_01: So they would only pay interest on$450,000.
4:15
SPEAKER_00: Is that what you're so so you're not reducing the uh loan balance?
4:20
SPEAKER_00: So a lot of people the interest payable component interest payable component, right?
4:23
SPEAKER_00: You're not putting your$50,000 into the home loan account, you're keeping it in a savings account.
4:30
SPEAKER_00: Now, savings account, you sold a car, like you said, you got$50,000, goes to savings account, you're offsetting it, and then you deal realize it in about three months later.
4:41
SPEAKER_00: Man, I want to buy another car, go and spend fifty thousand dollars.
4:44
SPEAKER_00: So now you're not offsetting your your your savings account or offset account balance is zero in that situation, right?
4:51
SPEAKER_00: So you're not actually paying down the home loan in per se, but you're saving by offsetting your saving interest uh against that against the yeah, right?
5:01
SPEAKER_00: And and it's over over the period of time, you will save quite a large amount of interest if you keep saving into that offset account.
5:09
SPEAKER_00: And also when you start using that offset account in the in the way that it has been designed to be used, you'll save even more.
5:19
SPEAKER_00: Okay.
5:20
SPEAKER_01: So so if someone put money, let's say we put that 50,000 in the offset account, yeah, and if someone wanted to pull it out for to buy another car, are there any fees involved in pulling that money out?
5:33
SPEAKER_01: What's the process procedure?
5:35
SPEAKER_00: No, it's your money.
5:36
SPEAKER_00: Okay, there's no there's no fees.
5:38
SPEAKER_00: Yeah, um it's just like taking money and that's it.
5:42
SPEAKER_00: Yeah, there's no there's no fees.
5:44
unknown: Okay.
5:45
SPEAKER_00: Um, but most banks do charge a fee for that feature.
5:50
SPEAKER_00: For the offs to have an offset account.
5:52
SPEAKER_00: To have an offset account.
5:53
SPEAKER_00: So if you're not gonna be having any money in your offset account, yeah.
5:58
SPEAKER_00: Maybe consider not to have the offset facility uh in your home loan.
6:04
SPEAKER_00: Um because if you if you're not if you're not if you're having a home loan balance of$500,000, yeah, and you're not planning on having, I don't know,$50,000 or even at least, at least, at least 10% of the balance, you know, you know, you're not saving that much.
6:22
SPEAKER_01: Okay, so so for people, if they don't have a large sum of money they can put in an offset account, it's not the best idea to use uh it's uh an offset account facility.
6:34
SPEAKER_00: It's not, I mean, to be to be really direct, um if I get if I become very direct about it, yeah if you are using the offset facility daily basis, you may not need a large amount of savings or money in the account.
6:58
SPEAKER_00: Interest gets charged daily, okay, right?
7:01
SPEAKER_00: Yeah, so you earn money, your payment could be weekly, some guys daily, some fortnight, some monthly.
7:12
SPEAKER_00: This is repayments into the offset account.
7:14
SPEAKER_00: Yeah, your your wages or whatever earnings you are having.
7:18
SPEAKER_00: Okay.
7:19
SPEAKER_00: So now if you if you if you start thinking about, okay, now you get a you get a two and a half thousand dollars per week rent or per week income, yeah, rent or whatever, right?
7:31
SPEAKER_00: If you're only gonna be using five hundred dollars in that week, now you're having two thousand dollars in the next week.
7:39
SPEAKER_00: So every week two thousand keeps getting added up.
7:41
SPEAKER_00: He is getting added up.
7:42
SPEAKER_00: Now you might use you know, uh out of ten thousand that you will end up earning that month, you might end up using eight thousand dollars by the end of the month.
7:52
SPEAKER_00: But the amount of days that you had that money against the in daily interest being charged, that that is the uh you'll be surprised the significant amount of savings you will have.
8:05
SPEAKER_00: Because interest is charged on a daily basis.
8:07
SPEAKER_00: In a daily basis.
8:08
SPEAKER_00: That's why a lot of people go wrong with this offset account.
8:10
SPEAKER_00: They they think okay, offset account, I gotta have the balance, end of the month, whatever the balance is.
8:15
SPEAKER_00: Uh that's not how it works.
8:16
SPEAKER_00: So, so Prabhupada, what are some pros of offset accounts?
8:21
SPEAKER_01: Because I'm assuming you've used offset accounts for your personal uh Yeah.
8:28
SPEAKER_00: See, pros of offset accounts, think about it very simply.
8:33
SPEAKER_00: Um Let's make this personal.
8:35
SPEAKER_00: Why would you use an offset account?
8:37
SPEAKER_00: So I can I pay less interest for my bad debt.
8:40
SPEAKER_00: Yeah.
8:41
SPEAKER_00: I I won't offset against my good debt.
8:44
SPEAKER_00: What for?
8:45
SPEAKER_02: Yeah.
8:46
SPEAKER_00: I I want to pay interest so I get more tax benefits, but I will offset against my bad debt.
8:54
SPEAKER_00: Um so the pros of an offset account is if you use it correctly, you will save interest over the time, and which means you will you will be paying down the principal as well.
9:08
SPEAKER_00: So it's like a it's it works in a simultaneous manner, right?
9:13
SPEAKER_00: You're saving interest, and because you keep paying the same repayment to the loan account, your interest component has reduced where it's supposed to be.
9:22
SPEAKER_00: If the interest component is supposed to be, let's say,$1,000 a month, because you're offsetting, you're only paying$500 per month of interest, but you're keep paying that$1,500.
9:34
SPEAKER_00: Now you're doing a uh$1,000 more towards your principal.
9:40
SPEAKER_00: Now your principal is reducing quickly.
9:43
SPEAKER_00: So you're you're you're shaving years of your loan term.
9:47
SPEAKER_02: Yeah.
9:48
SPEAKER_00: So over the years, what you're doing is you're also saving a lot of money into the home loan and and helping the equity position of you to reinvest that money in a property or or whatever the asset class that you want to invest.
10:04
SPEAKER_00: Um, so that is one of the uh main pros I would say in an offset account.
10:11
SPEAKER_00: And and the second one I would say you have more control, right?
10:16
SPEAKER_00: So it's it's uh it's a transaction account.
10:19
SPEAKER_00: So when it's a transaction account, you have a card or whatever, right?
10:23
SPEAKER_00: Uh it's easy to swipe, bang, bang, you know, you can do transactions quickly, yeah.
10:28
SPEAKER_00: Um opposed to uh an irritator.
10:33
SPEAKER_00: So that's the second advantage I would I would say for for for offset accounts in a in a very simplified way.
10:41
SPEAKER_00: There are the advantages, but you know, uh I think uh if we keep it very simple for people to understand how to use and what are the uh pros and cons about offset account, the the the the pros are those the main main main thing, right?
10:58
SPEAKER_00: Now, if you want me to jump into cons about, I mean I mean might as well jump, yeah.
11:05
SPEAKER_00: So to to majority of the banks to have uh uh an offset account, they're gonna charge you an annual fee.
11:12
SPEAKER_00: Now, whether you're gonna have money or not, whether you use it in a correct way, they don't care.
11:17
SPEAKER_00: They're just giving you the facility, it's it's it's your problem that you're the one who's not using it.
11:21
SPEAKER_00: So they're gonna keep charging you that money.
11:23
SPEAKER_00: Some banks charge you monthly, some banks charges you annually.
11:27
SPEAKER_00: Um, so there is a uh a disadvantage there where you pay for it.
11:33
SPEAKER_00: If you're not using it, that money is actually pointless.
11:38
SPEAKER_01: Um the the the second thing and uh Prabhu uh offset accounts off like people can only use the offset facilities when they're on variable interest, right?
11:54
SPEAKER_01: They they can't use it on uh when they're on fixed fixed rates.
11:59
SPEAKER_00: That's that's that's what I was gonna say.
12:00
SPEAKER_00: The second thing about offset facilities, there are types of offset facilities.
12:04
SPEAKER_00: Yeah, some offset facilities are 100% offset, which is which are good, right?
12:08
SPEAKER_00: So you you're supposed to have them.
12:10
SPEAKER_00: Some partial offset, okay.
12:13
SPEAKER_00: 40%, 50%, 70%, things like that.
12:16
SPEAKER_00: So you have to make sure you read your own contract.
12:22
SPEAKER_01: Why would someone go with a partial offset facility?
12:26
SPEAKER_00: Uh people tend not to go with partial offset facility.
12:29
SPEAKER_00: People just don't realize that they have been given a partial offset facility.
12:33
SPEAKER_00: Oh, the bank decides that for you.
12:36
SPEAKER_00: They don't decide, they they advertise it, okay, but you miss reading it.
12:40
SPEAKER_00: Oh, I've got an offset.
12:42
SPEAKER_00: Oh, you don't read the terms and conditions.
12:43
SPEAKER_00: The fine print, you know, the little always read the fine print.
12:46
SPEAKER_00: Yeah, you gotta you gotta um but they do tell, right?
12:49
SPEAKER_00: By the way, they do tell it isn't a partial or whatever, 40% over.
12:52
SPEAKER_00: It just goes over your ear.
12:54
SPEAKER_00: When you see an offset, it's a marketing gimmick, if you really think about it.
12:57
SPEAKER_00: I mean, we are in marketing, we we we we know this language a lot.
13:01
SPEAKER_00: Yeah, this loan comes with readro, offset, extra repayment, list goes on, and then the customer's like, brilliant, I have the best loan.
13:14
SPEAKER_00: How does the offset facility work?
13:16
SPEAKER_00: You don't read it.
13:17
SPEAKER_00: That's where you you know so fixed rates you're talking about.
13:22
SPEAKER_00: Um fixed rates, some banks have the facility.
13:28
SPEAKER_00: Offset facilities, but they only give partial.
13:31
SPEAKER_01: Uh, so they can't go 100% offset.
13:33
SPEAKER_00: What's the point?
13:34
SPEAKER_00: You know, for them they're not making money.
13:36
SPEAKER_00: Banks don't like to exist in this world if they're not making money.
13:40
SPEAKER_00: Why would they?
13:41
SPEAKER_00: 100%.
13:41
SPEAKER_00: Right.
13:42
SPEAKER_00: So it's a partial, pretty much.
13:45
SPEAKER_00: Most of the time, whoever gives that option.
13:47
SPEAKER_00: So how about a partial offset account?
13:49
SPEAKER_00: So you you you know, simple mathematics, you have$100 in your savings, yeah, offset.
13:55
SPEAKER_00: You owe$100 to the bank.
13:59
SPEAKER_00: Banks say, all right, that offset, we will only give you 40% to offset.
14:03
SPEAKER_01: So because you can offset the full amount if you have yeah.
14:07
SPEAKER_00: So you you still have to pay me about 60% of interest.
14:11
SPEAKER_01: So it only works if you've got a large sum of money saved up.
14:15
SPEAKER_00: Uh I mean, look, these days I hardly see anyone doing partial offset unless you want to go down the path of fixing it, and then it still have an offset facility for the sake of it.
14:30
SPEAKER_00: Yeah.
14:31
SPEAKER_00: But the reason, again, these are these are the these are certain complex finance structures that I would have done for certain types of people in a in a specific um strategy.
14:45
SPEAKER_02: Yeah.
14:45
SPEAKER_00: So how it works is uh I'll try and keep it very simple as possible.
14:51
SPEAKER_00: We have a goal.
14:52
SPEAKER_00: We've we've written down, all right.
14:54
SPEAKER_00: Yeah, year one, we're sitting at year one, year two, we gotta be buying this particular property, year three, we gotta buy this property, year four, we want to sell this property, year five, six, we want to double up.
15:06
SPEAKER_00: Yeah, so now we are on a pathway.
15:10
SPEAKER_00: What we are doing is we have a bad debt, so we need to reduce the interest component, but at the same time, we don't want to play around with the interest market where it can fluctuate and uh and affect the cash flow of that particular individual or uh of a particular uh uh entity.
15:30
SPEAKER_00: So what we do is we go and fix the bad debt, and we say, all right, let's go and offset 40% of it.
15:39
SPEAKER_00: So we get 40% of that facility, but now we have a fixed repayment done for the next three years so we can enable year two and year three goals.
15:53
SPEAKER_01: Yeah, I mean, if if you were following, I hope you were listening.
15:59
SPEAKER_01: I I I lost promo somewhere.
16:01
SPEAKER_01: I'm not gonna lie.
16:02
SPEAKER_01: Uh I got a bit confused because I was thinking about uh I'm gonna ask you next, Pramo.
16:09
SPEAKER_01: Let's talk about let's move on to redraw facilities.
16:13
SPEAKER_01: I didn't get a lot of numbers uh he was doing in his head, and in my head, I was doing all kinds of other numbers.
16:21
SPEAKER_01: Now we're gonna move on to redraw facilities, guys.
16:24
SPEAKER_01: I uh if you were if you were you know if you resonated with what Pramu was saying and you feel like a strategy like that would work for you, uh do reach out to us and we can give you guys a tailored strategy.
16:36
SPEAKER_01: That's what we do at TFS.
16:37
SPEAKER_01: Uh we don't have a one size fits all approach because it's not one structure we give.
16:43
SPEAKER_01: Yeah, exactly.
16:44
SPEAKER_01: You know, uh the strategy that works for you may not work for me, what works for me will not work for you.
16:49
SPEAKER_00: It's not ChatGPT.
16:51
SPEAKER_00: I mean, I've I've seen this a lot these days, man.
16:54
SPEAKER_00: It's so funny.
16:54
SPEAKER_01: There's so many AI brokers.
16:57
SPEAKER_00: I give you structure.
16:58
SPEAKER_01: AI real estate agents, you know, everyone's using AI.
17:02
SPEAKER_01: It's good if you use it for the uh for the right outcome.
17:05
SPEAKER_01: But uh anyways, let's move on to redraw facilities.
17:08
SPEAKER_01: Now, promo.
17:09
SPEAKER_00: Yeah, let's keep it simple.
17:10
SPEAKER_00: Yeah, what is a redraw facility?
17:11
SPEAKER_00: Oh man, I love this one.
17:13
SPEAKER_00: Um if you if you ask me the question, Bramu, which one you like?
17:18
SPEAKER_00: Redro or offset, or I'll say redraw because you like pulling out pulling out the money, yeah.
17:27
SPEAKER_00: Of course, yeah, yeah, that's what you meant.
17:31
SPEAKER_00: 100%.
17:33
SPEAKER_00: So the reason I like readrow facility, um I don't have to pay to save interest.
17:42
SPEAKER_00: Yeah, right?
17:44
SPEAKER_00: Now there's a slight inconvenience in there.
17:50
SPEAKER_00: I can live with that because that's the catch.
17:53
SPEAKER_00: That's the catch.
17:54
SPEAKER_00: Okay.
17:57
SPEAKER_00: But if you're not how do I say it, if you're not internet or digital banking savvy, you're not gonna like read row.
18:05
SPEAKER_00: You're not gonna like it.
18:06
SPEAKER_00: So so very simply, we have loan account here, yeah, which has let's say$500,000.
18:13
SPEAKER_00: I have$50,000, which is 10% I want to now, you know, save.
18:17
SPEAKER_00: Yeah.
18:18
SPEAKER_00: Instead of keeping it an offset facility where I pay about$300,000 or$400,000 or maybe$130 or whatever annual fee for these people, I take$50,000, I park it in my loan account.
18:32
SPEAKER_00: Now all of a sudden, my$400,000 loan reduced to$450.
18:38
SPEAKER_00: Okay?
18:38
SPEAKER_00: Yeah.
18:40
SPEAKER_00: In the loan account, it shows redraw available$50,000.
18:44
SPEAKER_00: Okay.
18:45
SPEAKER_00: I'm very happy.
18:46
SPEAKER_00: I'm only paying interest for$450,000.
18:49
SPEAKER_00: I'm still making higher repayments because my repayments are based on$500,000.
18:54
SPEAKER_00: I'm knocking off this loan quickly.
18:58
SPEAKER_01: Now, inconvenient factor is so so uh with a redraw, you you still save uh so you'll only be uh charged interest on$450,000 or absolutely because now you balance, yeah, you pay it down.
19:13
SPEAKER_00: Okay, and it says we so when when the home loans which has the redraw facility option, yeah, it says when you when you park the extra money into the loan, you get to access that money back to do whatever you want.
19:28
SPEAKER_00: Yeah, you don't need to put application or tell, hey, I'm not planning on going on holiday, or um, you know what, I want to buy this expensive uh watch.
19:40
SPEAKER_01: Hey, it's Valentine's Day.
19:41
SPEAKER_01: I gotta take my girl for some expensive uh dinner, something like that.
19:45
SPEAKER_01: Or expensive day.
19:46
SPEAKER_01: I've never done that.
19:47
SPEAKER_01: Is that what you I don't know?
19:48
SPEAKER_01: I'm assuming.
19:49
SPEAKER_01: I mean it was Valentine's Day.
19:51
SPEAKER_01: Oh, really?
19:51
SPEAKER_01: Last weekend, and uh my friend took me the week before to go shopping.
19:56
SPEAKER_01: And so hang on.
19:57
SPEAKER_01: So you you you have Valentine.
19:58
SPEAKER_01: I didn't know that you have a Valentine's took me to go shopping to get his Valentine gift, and he got a very expensive engagement ring, which made me uh think I don't think I want to get married.
20:12
SPEAKER_00: We deviated that's a that's another episode that we will talk about marriage and finance.
20:19
SPEAKER_00: Right, so coming back to redraw.
20:22
SPEAKER_00: So you got your money parked in the loan account, but you're paying 450.
20:26
SPEAKER_00: You can access this$50,000 anytime you want.
20:30
SPEAKER_00: Now, where you get stuck, not stuck, it's the wrong word, where people don't like to use redraw, it's just a little inconvenience factor that comes with it, which you have to now transfer.
20:44
SPEAKER_00: Let's say I decided to buy uh okay, there's a watch I really like available$25,000.
20:54
SPEAKER_00: Now I want to use my$25,000, which is parked in my own loan.
21:00
SPEAKER_00: Now, for me to do that, I can't, I don't get a swipe card, I don't get a debit card or credit card to use it.
21:07
SPEAKER_00: That money.
21:08
SPEAKER_00: Yeah.
21:09
SPEAKER_00: You can use it, you can use a credit card as a different story.
21:11
SPEAKER_00: You can use a credit card and then ask, you know, but I'll get to that.
21:15
SPEAKER_00: So let's say you want to use the$25,000.
21:17
SPEAKER_00: What do you have to do?
21:18
SPEAKER_00: You have to log into the home loan account, transfer that$25,000 to your transaction account, which is linked to your home loan account.
21:28
SPEAKER_00: Most most of the time, that's your uh uh uh direct debit account.
21:31
SPEAKER_00: Yeah, transfer back into that.
21:36
SPEAKER_00: Sometimes it may not happen straight away.
21:38
SPEAKER_00: A couple of hours later, money is in the account, and then off you go, you use it.
21:43
SPEAKER_00: That's the inconvenience factor in a re draw.
21:45
SPEAKER_00: Okay, so but there's no fees.
21:47
SPEAKER_00: No fees, nothing.
21:48
SPEAKER_00: Redro doesn't have fees.
21:52
SPEAKER_01: So okay.
21:55
SPEAKER_00: You know?
21:56
SPEAKER_00: Yeah.
21:57
SPEAKER_00: Now let's Let's let's look at comp not complex.
22:03
SPEAKER_00: Let's look at um high net worth clients who has properties above 10.
22:08
SPEAKER_00: Now they might have their home loan into different splits because what they have done is they've they've used those money into different kinds of investments of their access security.
22:18
SPEAKER_00: Now, technically, you don't need to go and offset because those those things are also tax deductible.
22:23
SPEAKER_00: Let's say argument's sake, you want to do it.
22:25
SPEAKER_00: Yeah.
22:25
SPEAKER_00: Now that is that is that is inconvenient to have park money in in multiple loan accounts.
22:35
SPEAKER_00: It's a pain.
22:36
SPEAKER_00: Now, for those types of clients, offset works very well because there are multiple offset accounts you can do.
22:42
SPEAKER_01: I have a question.
22:43
SPEAKER_01: So if you've got uh let's say you've got two home loans, yeah, and you've got one offset account, can you link one offset account to two home loans?
22:52
SPEAKER_00: Yes and no.
22:53
SPEAKER_00: Um I mean, why would you need to do that when when you can't have another offset account linked to the other, right?
23:05
SPEAKER_00: Yeah, because because you the bank only charge, this is the beauty about our offset.
23:09
SPEAKER_00: Bank only charge one fee.
23:11
SPEAKER_00: You can have multiple offset accounts.
23:13
SPEAKER_00: Oh, okay.
23:13
SPEAKER_00: So it doesn't matter how many offset accounts are so that's what I said.
23:17
SPEAKER_00: If you're gonna use it, use it wisely.
23:19
SPEAKER_00: Yeah, right.
23:20
SPEAKER_00: I I don't like to have multiple accounts for my bad debt, which is my home loan.
23:25
SPEAKER_00: I don't I think it's more stressful.
23:29
SPEAKER_00: What about four?
23:30
SPEAKER_00: Yeah, keep it simple.
23:31
SPEAKER_00: I just have one bad debt, one offset account if I want to use it, but most of the time I use the re-ro.
23:38
SPEAKER_00: I like that.
23:39
SPEAKER_02: Yeah, right.
23:40
SPEAKER_00: Um, so you've clearly got a preference.
23:42
SPEAKER_00: I do.
23:43
SPEAKER_00: Yeah, but I also negotiated with the bank and said, hey, look, I've given you enough business, you can't charge me for an offset.
23:51
SPEAKER_00: Okay, I just like to have it.
23:52
SPEAKER_00: I may not use it, but I want it.
23:55
SPEAKER_00: How many of you have hustled the bank?
23:57
SPEAKER_01: The other way around, the bank hustles you.
23:58
SPEAKER_00: No, I mean most of the bank hustles the bank.
24:02
SPEAKER_00: Yeah, but but but but if you we we do that for for many customers, right?
24:06
SPEAKER_00: But but you you have to stand, you gotta you gotta be in a position to say, hey, I've given you enough business position.
24:13
SPEAKER_00: Makes sense, yeah.
24:14
SPEAKER_00: Yes, because you have a one million dollar loan, that's not enough business.
24:17
SPEAKER_00: Yeah from the bank's perspective.
24:21
SPEAKER_00: And sometimes if you when you when you really negotiate hard, they do give a one year free.
24:27
SPEAKER_00: We've done that multiple times to a lot of clients who need that assistance.
24:31
SPEAKER_00: We've done that one year free, 395.
24:34
SPEAKER_01: There you go, clients.
24:34
SPEAKER_01: You know, if you if you if your broker is not a hustler that's gonna fight on your behalf, it's gonna hustle the banks on your behalf, you you need to you need a new broker.
24:44
SPEAKER_00: That that's a that's a good way of looking at it.
24:46
SPEAKER_00: Yeah, I know, right?
24:47
SPEAKER_00: And a hustler, he's a hustler, slash a broker, slash a broker.
24:51
SPEAKER_00: Your broker's a hustler.
24:54
SPEAKER_00: Okay, that narrows the market quite a lot.
25:01
SPEAKER_01: Coming down to the pros and cons of redraw cons because just like anything good in life, there's always a catch.
25:10
SPEAKER_01: Redro.
25:12
SPEAKER_00: I mean, the catch to me, the catch is that just that inconvenience factor, you know, transfer.
25:17
SPEAKER_00: I do that.
25:18
SPEAKER_00: Look that's all I can think of, to be honest with you.
25:24
SPEAKER_00: Redro is uh is one of the best features, in my opinion, that was invented to as an alternative option for offset.
25:37
SPEAKER_00: I I don't see any yeah, in my opinion, I don't see any flaws in it.
25:42
SPEAKER_01: So in some ways they're similar.
25:45
SPEAKER_01: They're similar.
25:47
SPEAKER_01: It's just in one you park the money in the loan, yeah, and the other one you just park it in an account that's directly linked to the loan.
25:54
SPEAKER_00: Yeah.
25:56
SPEAKER_00: It's like you know, uh siblings in a family, brother and sister, brother and sister.
26:03
SPEAKER_00: One likes to make it you know, things a bit harder, make pay the parents' life a little harder.
26:09
SPEAKER_00: And then the other one, no, yeah, you know, just go with it.
26:15
SPEAKER_01: All right.
26:16
SPEAKER_01: So from now that we've discussed, you know, um we've gone into breaking down offset accounts versus redraw accounts.
26:24
SPEAKER_01: Yeah, let's talk about who each strategy is best for, right?
26:30
SPEAKER_01: Offset accounts.
26:32
SPEAKER_01: If if someone was uh let's say, okay, I'll give you an example.
26:37
SPEAKER_01: If someone's a business owner, right?
26:40
SPEAKER_01: Uh or a property investor, what's a good strategy for this kind of individual?
26:47
SPEAKER_01: What would work better for them?
26:50
SPEAKER_00: See, as I said before, offset facilities are very good for high net worth or high income earners, not high net worth.
26:58
SPEAKER_00: High income earners is brilliant because offset facilities, because they are income coming at a chunk, large sums of money, large sums of money.
27:07
SPEAKER_00: So then daily basis, if you play with the funds, it's brilliant, right?
27:13
SPEAKER_00: Yeah, so there are a lot of business owners I know they do this, they don't go to redroad, they they go with offset because money comes in, money goes out, money comes in.
27:24
SPEAKER_00: It's constantly happening.
27:26
SPEAKER_00: But even a one-day interest savings, it's just it's it's it's a lot, it's a lot, so it adds up.
27:33
SPEAKER_00: So offset facilities, in my opinion, very, very good for high-income earners, uh or larger traffic coming into your account.
27:44
SPEAKER_00: Yeah, that's a better because you don't need to be inconvenient to put it to the loan account and transfer, but that won't work for them.
27:54
SPEAKER_00: Yeah, they gotta have quick access.
27:56
SPEAKER_00: So I will stick with offset facility option, or income earners, high income earners or income earners constantly money is coming in better.
28:08
SPEAKER_01: A person, even a person with multiple streams of income.
28:11
SPEAKER_00: Yeah, yeah.
28:12
SPEAKER_01: Okay.
28:13
SPEAKER_01: And then redraw.
28:15
SPEAKER_01: Would you say a redraw is best for uh long-term owner occupiers, people who are like disciplined with their payment structures?
28:27
SPEAKER_00: Redraw is absolutely better for long-term purpose, right?
28:32
SPEAKER_00: So if you're gonna transfer$50,000 and keeping$15,000,$50,000 in the account for the next three months or next six months, brilliant.
28:42
SPEAKER_00: Yeah.
28:42
SPEAKER_00: Right.
28:44
SPEAKER_00: It's a set and forget kind of uh thing.
28:48
SPEAKER_00: Yeah, brilliant, in my opinion, because there are there there's another fact, there's another side of this thing of redrow as a mindset uh reset.
29:00
SPEAKER_00: When you transfer the money into the loan account, it's in the loan account.
29:04
SPEAKER_00: Somehow or the other, you realize I have paid down my loan, which is good.
29:08
SPEAKER_00: Yeah, it's a good feeling, right?
29:13
SPEAKER_00: Now think about it from an offset, yeah.
29:15
SPEAKER_00: You haven't paid down your loan.
29:16
SPEAKER_00: Your loan is there, you just have the money.
29:18
SPEAKER_00: Yeah, and it's just uh and you have easy access to go and spend it on things, whatever things.
29:25
SPEAKER_01: Oh, so you're saying if you put put it in a redraw, you're less likely to use that money, yeah, as opposed to having it in an offset because you know mentally you see ah I have this much money saved.
29:36
SPEAKER_01: It's a slight, very slight mindset reset happen.
29:40
SPEAKER_00: So accessing the money, is it faster to access it from an offset?
29:46
SPEAKER_00: Offset is faster.
29:47
SPEAKER_00: You have a you have a debit card or a visa or whatever.
29:51
SPEAKER_00: You have to go and transfer the money.
29:52
SPEAKER_00: You can pay, you can pay password.
29:54
SPEAKER_00: What do you call it?
29:54
SPEAKER_00: Apple Pay pay away, bam, bang, you're done.
29:57
SPEAKER_00: Yeah, but with uh with a redo, you can't.
30:00
SPEAKER_00: You have to log in, transfer, and then do that.
30:03
SPEAKER_00: So those additional steps will also keep you from wanting to have yeah, you know, I want to spend on that, but uh this happens a lot, right?
30:10
SPEAKER_00: Like if you if you really think about it, you go out, have a good night, and you know, you want to shout out the bill, and then all of a sudden you realize, oh, hang on, I gotta get a bit more money to pay.
30:24
SPEAKER_00: Chances are very low that you will log into the home loan account and transfer.
30:28
SPEAKER_01: Yeah, by the time you get through all those steps, someone would have paid depending on the service provider you use, you might have really bad internet connections.
30:36
SPEAKER_01: Yes, no shots taken at anyone.
30:38
SPEAKER_00: Yeah, I mean, yeah, you know, um so it's good for for individuals who who want to be sometimes somewhat controlled for their expenditure.
30:54
SPEAKER_00: Yeah.
30:55
SPEAKER_00: We've seen this.
30:58
SPEAKER_00: I mean, we all we all have our flaws, right?
31:02
SPEAKER_00: We you know we have money, we want to do this, we want to do that.
31:06
SPEAKER_00: Look, for me, you I like to enjoy my life.
31:10
SPEAKER_00: I I'm not a guy who keeps the money in the account and let it rotten.
31:16
SPEAKER_00: It's not me.
31:17
unknown: Yeah.
31:18
SPEAKER_00: If it's there, I'll use it for something that I really like.
31:21
SPEAKER_00: Not all the time for investments.
31:24
SPEAKER_00: I mean, as you can you you see in me, uh I I if I want to drink a certain kind of a whiskey, I'll just I'll spend it.
31:32
SPEAKER_00: Yeah.
31:33
SPEAKER_00: Drink that whiskey.
31:35
SPEAKER_00: The whiskey, it's okay for me.
31:36
SPEAKER_00: Yeah.
31:37
SPEAKER_00: But then if the funds are always accessible, then it can be a habit.
31:43
SPEAKER_00: Exactly.
31:44
SPEAKER_00: You know what I'm saying?
31:45
SPEAKER_00: So that's why I said for me, re-draw, brilliant.
31:48
SPEAKER_00: Thank you very much.
31:49
SPEAKER_00: I'll stick with re-draw.
31:51
SPEAKER_00: Yeah.
31:51
SPEAKER_00: Offset, I don't like it.
31:52
SPEAKER_00: We do have offset, Sonali and I do have offsets.
31:56
SPEAKER_00: I don't even know how to access because I don't even have the cards.
32:00
SPEAKER_01: Because you're a naughty boy.
32:01
SPEAKER_00: Uh yeah, I can see something shiny, you want to go buy it.
32:05
SPEAKER_00: I do sometimes have this shiny syndrome.
32:07
SPEAKER_00: We call it, you know, but it's a good thing, in my opinion.
32:11
SPEAKER_01: So just uh just out of curiosity, probably for a first home buyer, yeah, right?
32:16
SPEAKER_01: Uh average income, you know, but house average household income, both joint income would be around, let's say,$180,000, right?
32:26
SPEAKER_01: Uh for them you would recommend using a redraw facility.
32:35
SPEAKER_01: Because they would also want to be, it'll also help them be disciplined.
32:39
SPEAKER_00: Yes and no, right?
32:40
SPEAKER_00: It depends, it depends um circumstances because you have to also understand what kind of a cash flow situation they are in.
32:50
SPEAKER_00: Right now, certain forget situation may not happen quite a lot for first-stome buyers, yeah.
32:57
SPEAKER_00: But there are situations that it happens when you when your parents give you a gift, which you never plan to have it.
33:04
SPEAKER_00: Yeah.
33:05
SPEAKER_00: So I could redraw.
33:06
SPEAKER_00: Now, good thing about offset facilities.
33:08
SPEAKER_00: Now, this is one of the things I forgot to mention.
33:11
SPEAKER_00: Offset facilities often comes with redraw facility too.
33:16
SPEAKER_00: Oh, so you can have a redraw facility against your home loan, and you can also have an offset against your so when you when you when you go down the path of paying for for an offset facility of$395 or$400, usually the bank starts around that, you get redraw facility as well.
33:37
SPEAKER_01: Okay.
33:38
SPEAKER_00: Right?
33:39
SPEAKER_00: Okay.
33:39
SPEAKER_00: So it's there, it's up to you which one you want to use it.
33:44
SPEAKER_01: Two birds with one stone.
33:45
SPEAKER_00: Yeah.
33:46
SPEAKER_00: But then you want to save that$395 or whatever$300 that you pay for facility, then you get the re-drow facility from the bank.
33:57
SPEAKER_00: But for a for a little inconvenience factor, you're okay.
34:02
SPEAKER_00: First stone buyers is a very, very different kind of a breed, in my opinion.
34:08
SPEAKER_00: Because you're just learning how to pay a mortgage.
34:12
SPEAKER_00: Yeah.
34:13
SPEAKER_00: So when you when you're learning how to pay the mortgage, in my opinion, maybe try out offset and re-row both option.
34:22
SPEAKER_00: You have to figure out which one actually suits you.
34:25
SPEAKER_00: Because at the end of the day, we all go into the same same milestone, right?
34:30
SPEAKER_00: We want to pay down the home loan faster.
34:33
SPEAKER_00: So you can save zero thing.
34:36
SPEAKER_00: Yeah.
34:36
SPEAKER_00: That that that's what everybody wants to do.
34:38
SPEAKER_00: So you sometimes have to figure out what actually suits your lifestyle.
34:43
SPEAKER_00: I can't give you an advice.
34:45
SPEAKER_00: I mean, I will tell you what how readrow works and an offset works.
34:48
SPEAKER_00: What's the best way to use offset and the best way to use reader.
34:52
SPEAKER_00: I can tell you that, but it's up to you to figure out how that process will work for me.
34:59
SPEAKER_00: And also without knowing a person's uh circumstances, it's very hard to say.
35:05
SPEAKER_00: It's very hard to say because we don't know what kind of uh employment you are in and then how the money is coming in and monthly expenses.
35:15
SPEAKER_00: We don't know, we we don't know that.
35:16
SPEAKER_00: We don't know that.
35:17
SPEAKER_01: So so it it every single time it changes to person to person, it's it comes back to tailored financial strategies.
35:26
SPEAKER_01: Yep, you gotta get one.
35:29
SPEAKER_01: If you don't have one, you have to if you don't know how to make one for yourself, you gotta talk to someone who can give you one.
35:35
SPEAKER_00: You you can't just go into a bank and say, Hey, I want a home loan.
35:39
SPEAKER_00: Thank you, or go and buy a house.
35:43
SPEAKER_00: Yeah, it doesn't work that way, right?
35:47
SPEAKER_00: So many good brokers who have been in the industry for a long time, or many good brokers who are in the industry doing well, none of these guys stick to uh uh uh product that the bank gives you, okay.
36:03
SPEAKER_00: Yeah, they don't.
36:05
SPEAKER_01: I guess it all comes back to putting all these uh strategies and structures and facilities aside, comes back to the fundamental discipline and budgeting.
36:16
SPEAKER_00: Yeah, so this is where some no, I mean one of the things I can I must say this is why the mortgage brokering industry is is big in Australia, because the market identifies the value of a mortgage broker, what they do, and what what what get what they can do as well for certain types of individuals.
36:38
SPEAKER_00: Where the reason the market pops up, thanks to the bankers.
36:42
SPEAKER_00: I used to be a banker too.
36:44
SPEAKER_00: I'm not I'm not taking short set bankers, right?
36:47
SPEAKER_00: Bankers are limited to their own products.
36:51
SPEAKER_00: Exactly.
36:52
SPEAKER_00: So you may not have all the clients walks into the bank that fits those products that they're available to sell, but they're forced to sell them.
37:02
SPEAKER_00: It's not they may not even want to do it, but that's what they've been paid to do.
37:08
SPEAKER_00: Yeah, exactly.
37:08
SPEAKER_00: Right?
37:09
SPEAKER_00: So that's why this mortgage brokering industry is massive in Australia because of the flexibility the mortgage broker gives to a client.
37:18
SPEAKER_01: Yeah, and which brings uh brings me to uh another concern that uh some clients have is that okay, they bought their first home two or three years ago, their broker gave them a strategy at the time.
37:30
SPEAKER_01: Uh, two or three years later, their financial circumstances would have changed.
37:34
SPEAKER_01: Absolutely, which means that strategy that they got stuck, uh that they were offered, Dobb, you know, the strategy that started when they when they got into the market, which was good back then.
37:44
SPEAKER_01: Back then, but it may not be the best strategy for them now.
37:47
SPEAKER_01: No.
37:48
SPEAKER_01: So it's good like every two or three years, you oh yeah, every every two years, I would say.
37:55
SPEAKER_00: Every two years, keep it keep it a habit.
37:57
SPEAKER_00: Every two years, speak to your broker and speak to your broker.
38:00
SPEAKER_00: I mean, have a look at more even before you speak it to your broker, have a look at where you are, what's your situation, have you added new expenses, or have you have you taken certain expenses off?
38:11
SPEAKER_00: Are you saving more money?
38:12
SPEAKER_00: Or you know, are you earning more money?
38:14
SPEAKER_00: You know these things.
38:15
SPEAKER_00: Even before you your broker tells you what to do, your little uh, you know, your subconscious already telling you um to your conscious mind, hey my you're in a better position now.
38:27
SPEAKER_00: Start looking for up opportunities.
38:29
SPEAKER_00: That's where the broker comes in, get the information.
38:31
SPEAKER_00: All right, you can do this, you can't do that.
38:34
SPEAKER_00: My advice is this, right?
38:36
SPEAKER_01: So you have to do it every two years, yeah.
38:40
SPEAKER_01: Because the end of the day, a good broker is supposed to give you the right advice and make your life much easier and save you a lot of money in the process, right?
38:51
SPEAKER_00: They are equipped to do that, yeah, but unfortunately, we have very limited amount of individuals in the industry have the experience to who more than the experience, Vishy, who have who wants to do it.
39:09
SPEAKER_00: They just want a quick buck.
39:10
SPEAKER_01: Yeah, but I reckon you know they're yeah, sometimes you have to because if if a client has to do the research and then go to a broker and say, I want to do this, and then the broker just facilitates that request, you can just go to the bank and uh tell the bank I want to do this.
39:26
SPEAKER_01: You don't need the broker.
39:27
SPEAKER_00: Nah, you can even just log in online and do it.
39:30
SPEAKER_01: Yeah, exactly.
39:31
SPEAKER_01: So waste time, yeah.
39:33
SPEAKER_01: Exactly.
39:34
SPEAKER_01: So with that being said, guys, uh thank you, promo, for uh you know shedding some light on offset versus redraw.
39:44
SPEAKER_01: Yeah, there's a lot of uh it's a it's a it's a big yeah, you know, a lot of people don't understand exactly what an offset is, yeah, and what a redraw is.
39:56
SPEAKER_00: They just want to have it because other others have it and the banks give it.
40:00
SPEAKER_01: Um because it's it's a term thrown around now even amongst our brokers.
40:05
SPEAKER_01: Yeah, uh, I hear it, you know.
40:07
SPEAKER_01: Or have you considered an offset?
40:08
SPEAKER_01: Yeah, or some clients would be like, oh, I want to get a redraw.
40:11
SPEAKER_01: Yeah, right.
40:12
SPEAKER_00: It's it's uh it's if I had to put it very simple, simplified way and summarize it, right?
40:19
SPEAKER_00: Um if you're an offset, you have easy access to your money for you to use for even for ready day.
40:27
SPEAKER_00: You have quick access.
40:28
SPEAKER_00: Yeah, but an offset in the correct way of using it, you gotta make sure your income comes in.
40:34
SPEAKER_00: Yes, you will also need to do expenses from that account as well.
40:38
SPEAKER_00: Or you have a credit card which is also linked into that particular offset facility.
40:44
SPEAKER_00: That's something that we didn't discuss.
40:45
SPEAKER_00: You can have your expenses going from credit card and then have your uh uh offset facility have a standing order to pay the credit card on a specific day.
40:53
SPEAKER_00: So you don't pay interest to the credit card while you have that 55 days of interest-free period, you save from your home loan.
41:01
SPEAKER_00: So you you save from always, right?
41:04
SPEAKER_00: So so the correct way of using uh uh an offset facility is like that.
41:08
SPEAKER_00: You you gotta have an expense account, which in my case, I would always have a credit card where I might even earn points.
41:14
SPEAKER_00: Brilliant, thank you very much.
41:15
SPEAKER_00: I won't pay interest, but I have a standing order, so I don't forget to pay to pay.
41:20
SPEAKER_00: Because if you forget to pay, then you pay this where a lot of people go wrong.
41:24
SPEAKER_00: You pay interest there.
41:26
SPEAKER_00: By the time you transfer the money, now you're starting paying interest here.
41:31
SPEAKER_00: So the bank's gonna win.
41:34
SPEAKER_00: Right?
41:34
SPEAKER_01: So maybe that's an another episode for another day.
41:37
SPEAKER_00: Credit cards, right?
41:38
SPEAKER_00: So so an offset, think about it that way.
41:41
SPEAKER_00: Have all three people working with you, yeah, which is the credit card, uh transaction or savings account, and the home loan.
41:48
SPEAKER_00: Redraw, chuck the money in, sit and forget.
41:52
SPEAKER_00: Forget about it.
41:52
SPEAKER_00: Yeah, I mean, it's a rainy day money, yeah.
41:56
SPEAKER_00: Right.
41:56
SPEAKER_00: So you don't pay for redraw, but you pay for offset facility.
42:01
SPEAKER_00: That's why you have all these features, like a last resort contingency.
42:05
SPEAKER_00: Yeah, right.
42:06
SPEAKER_00: So for first-home buyers, figure out which way that works for you.
42:11
SPEAKER_01: Yeah, um, once you figure it out, you need help figuring it out, you know.
42:16
SPEAKER_00: Talk to us, yeah.
42:17
SPEAKER_00: I mean, we we uh our guys will always facilitate it, but once you figure it out, continue to do it, then in two years later, evaluate your situation.
42:26
SPEAKER_00: You might want to change from offset to a redraw because you didn't do it right, yeah.
42:30
SPEAKER_00: Um, or what the other way around, too.
42:34
SPEAKER_00: So it goes like that.
42:36
SPEAKER_00: Uh, investors, you know, you don't you're not supposed to offset your investment loans.
42:44
SPEAKER_00: I've I'm seeing this quite a lot from a lot of people.
42:47
SPEAKER_00: Uh why you want to do that when you have tax benefits coming in, but uh understand how the tax benefit works if you're an investor and understand how an offset facility and a redraw facility could help you to gain more return from the tax man and save interest on bad debts.
43:07
SPEAKER_00: Right?
43:08
SPEAKER_00: Um, so sometimes a lot of people also, not sometimes I've seen this happening a lot.
43:14
SPEAKER_00: A lot of people have money against an offset facility or redraw while they have a personal loan which they're paying 15% or 16%, yeah, they're still paying it.
43:25
SPEAKER_00: I just don't understand the logic of that.
43:27
SPEAKER_00: You have$50,000 against your home loan, just offsetting a 6% interest, where you're paying uh uh a$30,000 personal loan at 15, 16%.
43:37
SPEAKER_00: Come on, take the money, pay that off first.
43:40
SPEAKER_00: Yeah, right?
43:42
SPEAKER_00: So sometimes, you know, uh you don't need to have offset facilities.
43:49
SPEAKER_00: Yeah, you can have a simple loan account, pay all the other bad debt off, then come into the comp complexity of these loans of you know, offset and redraw.
43:59
SPEAKER_00: So I I think I I broke broke it down very quickly.
44:02
SPEAKER_01: Yeah, see guys.
44:03
SPEAKER_01: Uh so if anyone's been confused with how offset and redraw works and what it is and who it's for, you're gonna find this episode quite beneficial.
44:13
SPEAKER_01: And so, like we said, uh, if you want a tailored structure that will work for you, give us a call.
44:19
SPEAKER_01: And with that being said, thank you, Promo, for your time, and we'll see you guys, we'll catch you guys on the next episode of the TFS Worldcast.
44:27
SPEAKER_01: See you later.
44:28
SPEAKER_01: Take care.
44:28
SPEAKER_01: Thank you for tuning in to another episode of the TFS Podcast, where we turn knowledge into action and big goals into real results.
44:38
SPEAKER_01: Now, don't forget to like and subscribe and share this episode with someone working towards their next financial step.
44:47
SPEAKER_01: Now, with that being said, until next time, keep building.