August 2017 Market Update - What is an offset account and what is a redraw facility?
If you are thinking about getting your first home loan, one of the first thing you will have to consider is what loan features you will want – if any.
Two of the more common loan features are offset accounts and redraw facilities.
If you have never had a home loan before, you may be wondering what is an offset account and what is a redraw facility.
Two very good questions.
In a nutshell, offset accounts and redraw facilities are two home loan features that use any extra income or savings to reduce the balance of your loan, in turn reducing your interest repayments - which can help you to save thousands of dollars over the life of your loan.
An offset account is a transactional account, which is linked to your home loan. The balance held in this account "offsets" the balance in the mortgage, helping you to reduce the interest paid and overall term of the loan.
A redraw facility on the other hand is a home loan feature that is attached to your mortgage that gives you the opportunity to make extra repayments to your home loan – which helps to reduce the interest repayments. You then have the option to “redraw” the extra funds you have paid into your mortgage if the need arises.
So now that you know what these home loan features are, you may want to know what the benefits of these home loan features are.
One of the main benefits of a redraw facility is the fact that it “forces” you to save.
Different lenders will have different rules when it comes to redraw facilities. Some lenders will limit you to as few as two redraws a year, while others may charge a fee per withdrawal or require that a certain ‘minimum’ amount be withdrawn every time.
While this doesn’t sound particularly flexible, it forces you to leave any extra funds you have pumped into your mortgage alone.
Meanwhile, with an offset account, it is very easy to deposit and withdraw money because it acts in the same way as an everyday transactional account.
Further, in an offset account, interest is calculated daily, so whether you save regularly or live paycheck to paycheck, as soon as there are some savings in your offset account for more than one day at any point in time, you will benefit from the offset effect on your home loan.
At Mortgage Choice, we can show you which home loan features might be best for your needs – if any at all.
So why not give us a call today on 13 77 62 to discuss your home loan options.