Which Home Loan Feature Saves You More?
Offset Account vs Redraw Facility: Which One is Right for You?
Managing a home loan effectively is about more than just choosing a low interest rate. Two features that can make a real difference are the offset account and the redraw facility. Both help reduce interest and pay off your mortgage faster, but they work in different ways. Understanding the differences is key to smart mortgage planning.
What is an Offset Account?
An offset account is a transaction account linked to your home loan. The money in this account offsets your loan balance, reducing the interest you pay.
Example:
If your mortgage is $500,000 and you have $50,000 in your offset account, interest is calculated on $450,000 instead of $500,000.
Benefits of an Offset Account:
- Reduces interest and helps you pay off your loan faster.
- Provides immediate access to funds for everyday spending.
- Ideal for borrowers who want flexibility while saving on interest.
Things to Consider:
- May come with higher fees than a basic home loan.
- Works best if you consistently keep funds in the account.
What is a Redraw Facility?
A redraw facility allows you to access extra repayments made on your home loan. Paying extra reduces interest, and you can withdraw the funds if needed.
Example:
Your monthly repayment is $2,000, but you pay $2,500. The extra $500 lowers interest, and you can redraw it later if necessary.
Benefits of a Redraw Facility:
- Reduces interest by paying extra on your loan.
- Gives access to additional repayments when needed.
- No need for a separate account.
Things to Consider:
- Some lenders charge fees or limit redraws.
- Accessing funds may take a few days.
- Less convenient for daily spending compared to an offset account.
See how a mortgage broker can help maximise your home loan
Offset Account vs Redraw Facility: Key Differences
| Feature | Offset Account | Redraw Facility |
|---|---|---|
| How it works | Reduces interest using account balance | Reduces interest via extra repayments |
| Accessibility | Immediate access to funds | Access may take a few days |
| Best for | Everyday spending & savings | Paying off mortgage faster |
| Fees | May have higher fees | Some redraws may incur fees |
Which One Should You Choose?
The choice depends on your financial goals and habits:
- Offset account: Best for flexibility and instant access to funds while reducing interest.
- Redraw facility: Ideal if you are focused on paying off your loan faster and can commit to extra repayments.
Many borrowers use a combination of both to balance flexibility and mortgage reduction.
How Truth Group Can Help
At Truth Group, I help you decide which home loan feature is right for you. Whether you’re buying your first home, investing in property, or looking to optimize your mortgage, I tailor solutions to maximize your borrowing power and reduce interest costs.
Reach out to Truth Group today for personalised guidance on home loans, offset accounts, and redraw facilities.
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