Many lenders offer a 100% offset account as a feature with standard variable home loans.
You can deposit your income into this transaction account and use it for day-to-day expenses. Any money in this account is offset against the amount owing on the home loan, and interest payable on the mortgage is then calculated on the loan balance less funds held in the offset account, reducing the amount of interest paid on your loan.
Here's an example: say you have $10,000 in your offset account and you currently owe $500,000 on your home loan. The money in your offset account ensures you only pay interest on your mortgage minus the money in your offset account. In other words, you will be charged interest on a $490,000 loan, rather than a $500,000 loan.
If you have a decent amount of money in your offset account from day one, you could find that it saves you thousands of dollars in interest over the life of your loan. But, keep in mind there may be higher monthly fees attached to the account and a minimum balance may be required in the account.
There are many steps involved in purchasing a property which can vary between residential and investment properties. This guide explains each step in order as well as what is involved at every stage of the purchasing process.
A redraw facility is a home loan feature attached to your mortgage that gives you the opportunity to make extra repayments on your home loan. This helps reduce interest costs. You then have the option to 'redraw' the extra funds.
A redraw facility acts in a similar way to an offset account by reducing the loan balance used to calculate the amount of interest payable, however, there are significant differences. A redraw facility may be imposed with limitation to the withdrawal amount and the number of redraws allowed per year. You may also be charged a fee for each redraw and can experience a wait for the funds to come through.
Compared to an offset account this is much less flexible and accessible, as an offset is generally set up as an everyday transaction account. Although, keep in mind that the convenience of an offset account may come at the costs of higher interest rates or additional account keeping fees.
Generally speaking, a redraw facility is less suited for investment home loans, because of its potential tax implications. However, it's worth doing the sums to see which one works better for you. Or better still, let a home loan expert crunch the numbers for you.
