Offset v Redraw specifics
Asked on the Up bank community, but would appreciate any insight here from similar people given our income and goals. Added context Up Home loan product = 5.95% fully variable, 0 fees, all shared accounts infra with my wife count as offsets against loan, all other details below.
Other perhaps useful context aside the bank specific Q: super bal = 235k me, 80k wife, both standard Rest Growth portfolio (should prob change this but that’s a separate question as we’re finally taking finances seriously)
TIA 🙏
My wife and I (37m/f) have done all banking with Up for the past few years now. Last month we finally refinanced our mortgage to Up, something we’d planned to do since the product was announced but needed to let job changes settle and get some consumer debt under control that we’d let get away for too long under the excuse of having a son who will turn 2 this week.
Goal is to pay down fast so we can afford a shift closer to the city (Melb, currently living a 60-90min commute to city we both do 1-2x a week on average) smaller place, easier to clean, but way closer and better before little man starts school. Target price likely 1.2-1.5m +/- whatever the housing market does.
Current situation:
PPOR value ~$800k
Mortgage bal ~$581k
Offset bal ~$26k
My income highly variable ~$250-300k (sales with monthly comm)
Hers part time $80k
3 months ago we cancelled all our credit cards, and refinanced 2 outstanding bills, card balances and the dregs of a loan used for the final part of our wedding into a consolidated 7.9% loan, ~20k remaining paying $490 a fortnight, will be killed off in under 2 years, no penalties on additional repayments. One goal will be when offset is healthier to kill this faster with the lumpier parts of my pay.
Offset is ~equally split between a small amount we’ve put away every paycheck for our son since he was born (plan to grow till he’s 18-20 to help with uni or buying a home) and a ‘rainy day’ saver we started 2 months ago and have built up rapidly thanks to tax returns and commissions.
We have set mortgage payments to happen every fortnight, 1 day after my pay hits:
Pay comes in
-$2500 goes to mortgage saver, 1 day later it pays mortgage
-$250 goes to son account
-whatever’s left allowing for ~$1500 spendable bal (nearly all expenses set as regulars) goes to ‘Rainy Day’
Sorry for the context novel: here’s the question:
-We’ve made 3 fortnight payments since settlement mid July: $2000, $2500x 2
-Min repayment = $3752, 25y term
-Till yesterday mortgage had no interest applied, so bal had come down $7k, and we had an available redraw of approx $3200 (can’t remember exactly but I would guess $7k -$3752?)
-First interest charge applied: $2825.45
-Available Redraw: $0
Our plan is to continue paying $2500 a fortnight (likely more once personal loan cleared), but it’s also important to us to build up more liquidity to avoid a situation like we were dumb with on credit cards (I paid hundreds a month in CC interest for a decade 🤦♂️). Why has the redraw gone to 0 despite interest being less?
This is likely a dumb question the answer for which is basic math, but appreciate and insight if anyone in a similar boat thinking about how they balance this. 🙏