Personal loans vs home loan redraw

So you've bought a home, but the bedless bedrooms are getting to you ditto the outdoor dunny. What's cheaper a home loan redraw or a personal loan?

Let's say you need $20,000. And you're 5 years into your home loan, with 20 years to go.

STEP 1. At the time of writing, the best home loan offers 6.39%, and the best secured (because you have equity in the house) personal loan is 8.9%.

• Obvious response: a home loan redraw is cheaper, thanks to way cheaper interest rates.

But let's do the maths (or we'll do it, and you can watch).

STEP 2. The redraw on this loan is free, and you're already paying the annual fee, so the extra fees on $20,000 redrawn are zero. The personal loan has a $125 setup fee.

• The redraw is better you fool!

STEP 3. Over the 20 years remaining on your home loan, your monthly repayments will increase by $148 to accommodate the redraw.

Over the 7 years of an average personal loan, your monthly repayments are much higher at $321.

• Just get the redraw already!

STEP 4. The total interest on your redraw - ie, the borrowing cost of your furniture or refurb - is a staggering $15,477.

The total interest and fees of your bank loan is $7069.

• Huh?

STEP 5. The problem with the redraw facility is that the extra debt sits around for 20 years long after you've ruined the new furniture. And you aren't forced to pay it off sensibly, as you are with a bank loan. So if you go ahead with the redraw, and simply pay the minimum monthly payments, a redraw is vastly more expensive than a bank loan.

STEP 6. However... If you were a particularly savvy Mozonian, you might decide to make repayments on your home loan at the higher level required by the personal loan - $321 per month instead of $148. With some super-human self-discipline, you'll benefit from a lower interest rate AND the shorter borrowing term and thus pay off the $20,000 redraw in just 6 years and 4 months, at a borrowing cost of $4,366.

Now that the financial adrenaline is racing, why not perform some heart-thunking calculations of your own

• How much would my repayments be?
• Which personal loan will cost me less?

Or get straight into the ring and find a new personal loan.