Offset accounts and redraw facilities are common features when it comes to home loans. Both can help you save on interest and pay off your home loan faster. However, they are different and offer different benefits.
Offset account
Think of an offset account like a transaction account that is linked to your mortgage. You can access these funds at any time, while the balance in your offset account can help you reduce your loan balance, which in turn reduces the amount of interest you pay on your home loan. For example, if you have a home loan of $500,000 and you have $50,000 in your offset account, you will only be charged interest on $450,000. The interest charged on your home loan is calculated on the difference between your outstanding loan balance and the balance in your offset account.
Redraw facility
A redraw facility, on the other hand, means you may be able to withdraw additional payments you have made on your home loan. For example, if you have been making extra repayments on your home loan, you can withdraw that money using the redraw facility. This can be useful if you need access to the money for other purposes, such as unexpected bills or renovations.
The main difference between an offset account and a redraw facility is how they work. An offset account reduces the amount of interest you pay by offsetting the savings against your outstanding loan balance, whereas a redraw facility allows you to withdraw any extra repayments you have made on your home loan.
It is important to note that redraw facilities can incur fees or have limits on how much you can withdraw at any one time, while a home loan with an offset account might attract a higher interest rate. Some loan types may not allow additional repayments to be made, so a redraw facility may not be available.
In general, both an offset account and a redraw facility can help you to pay off your home loan faster. But, as always, you need to consider your own financial needs and goals when making decisions regarding financial products.
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Disclaimer:
Any advice or information provided in this article is general advice only, and does not take into account your personal objectives, financial situation or needs. Before acting on any general advice you should consider its appropriateness given your personal circumstances. You should consider the Terms and Conditions and Fees and Charges for a product or service before acting on any advice to acquire it. Please consult with a financial adviser for personal financial advice.
