Redraw vs offset account

Following the recent interest rate rise and the media’s focus on how you can reduce your monthly home loan payments, we want to discuss two types of home loan features. Firstly, a redraw facility and, secondly, an offset account. Both of these loan features can be beneficial in reducing your home loan and interest payable.

What are these features, and what are the differences?

A redraw facility allows borrowers to make extra repayments into their home loan account and withdraw them later. The extra repayments reduce the loan amount and interest payable, enabling you to pay off your mortgage faster. A redraw facility can be valuable if you need cash in an emergency or must pay a significant expense like a holiday or renovations. The critical point to understand about a redraw facility is that the money is not yours but the lenders. Therefore, the lender can stipulate how much or little you withdraw, deposit, or hold in the account and how many times you can contribute or take from it. A redraw facility is generally only linked to variable home loans.

An offset account is a transaction (or savings) account that is linked to your home loan. The money in this account is ‘offset’ against your loan balance, reducing the interest payable. Offset accounts can be linked to variable or fixed-rate home loans. The advantage of this type of account is that you are in control of your money. You can have the flexibility for your employer to deposit your salary into the account and use it for everyday spending with a debit card. However, offset accounts can attract higher interest rates and fees than loans that don’t.

If you want to review your current home loan or have further questions, we suggest contacting our finance specialist Sean from MoneyQuest Croydon on 0467 007 300 or find out more via Finance Specialist – Max Brown Real Estate Group