I am refinancing a variable rate mortgage (current rates are low and expected to fall further in the next 12 months - currently 4.25%).
I have a cash sum equivalent to about 20% of the full loan amount.
My options are
- to place the cash in an at-call mortgage offset. This account pays no interest but for interest calculation purposes reduces my loan amount dollar for dollar.
- to place the cash in a term deposit (current rate is 3.05%pa). This would not be at call but for security I could stagger the deposits so that a portion of the cash is available every month or so.
This money is my safety net in case of illness/unemployment and I do not need/want regular access to it. I have 25 years until retirement.
I am confused because online calculators seem to imply that the term deposit is best long term (20+years) but the conventional advice is that mortgage offset is the way to go. The bank financial advisor recommends the offset for tax reasons (I would pay no tax on half of the interest from the term deposit, 30% on the second half). I don't know where to start in making this decision. Any advice is appreciated.