15 Jun How redraw and offset accounts can save you money*
Offset accounts and redraw facilities work in similar ways; they both allow you to reduce the balance of your home loan, and therefore the interest charged, by applying extra money to your debt.
Offset accounts are like savings accounts that function alongside your home loan. You generally have your income paid into this account and you often have a debit card attached for simple withdrawals. Offset accounts can be 100% offset accounts or partial offset.
With 100% Offset Accounts, you earn interest equal to the interest you are paying on your loan. Rather than earning savings account rates, you are earning home loan account interest rates on the money held within the offset account.
“Let’s say you have $10,000 in your 100 per cent offset account and you owe $100,000 on your home loan. Instead of paying interest on the full $100,000 loan, you only pay interest on $90,000”
Redraw facilities allow you to deposit spare income into your home loan account, allowing you to redraw a sum equal to the extra repayment amounts in future.
In the meantime, the extra money paid will lower the amount of interest charged while still giving you access to your money.
However, there may be restrictions on how much money can be withdrawn and when.
For redraw, it depends on whether the facility applies to a fixed-rate or variable loan. Most institutions only allow redraw from a variable-rate loan, or fixed-rate loan but with limited access.
Offset accounts, and redraw facilities, although free with many lenders, sometimes come with account fees, and transaction or redraw fees.
It is important to find out how a loan’s offset or redraw facility works before taking it on, to ensure you as the customer have the product that suits your needs.
Deciding between an offset account and a redraw facility on your home loan largely depends on how accessible you need your extra money to be.
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The information provided is general in nature only. Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.
*Subject to lender’ criteria, term and condition as well as fee and charges.