Offset Accounts VS Redraw Facilities

January 30, 2017
Ali Batten

When you take out a home loan, you will be forced to make decisions.
One decision you will have to make is what loan features you would like.
Two of the more common loan features you will be able to pick from is offset accounts and redraw facilities.
If you have never had a home loan before, it can be difficult to choose between an offset account and a redraw facility. In this article, we discuss exactly what each home loan feature does as well as the pros and cons of both options.

Mortgage offset account
An offset account is a savings or transaction account that is linked to your home loan. The money in your account is offset daily against the amount you owe on the loan so that you are only charged interest on the difference.
For example, if you have a $200,000 home loan and have $20,000 in your offset account, you will only pay interest on a home loan balance of $180,000.
Therefore, the more money you have in your offset account, the less interest you’ll be charged. As a result, you can potentially save thousands of dollars over the life of your loan, and cut years off your mortgage.
You can also use your offset account in the same way you would an everyday transaction account, so you can deposit your salary into it and withdraw money from the account as many times as you like without being charged access fees.
While there are many advantages associated with this type of home loan features, there are a few disadvantages as well. One of the main disadvantages associated with an offset account is that you cannot earn interest on the money within the account.

Mortgage redraw facility
A mortgage redraw facility gives you the ability to access any additional funds that you have paid into your mortgage.
For example, if your monthly repayments are $1,000 and you pay $1200 each month for six months, you will have paid an extra $1200.
A redraw facility lets you redraw the extra $1200 you have paid into your mortgage if you need to.
Some lenders will put a cap on the number of redraws you can make from your mortgage each year, which could be one disadvantage associated with this particular loan facility.
However, this could also be seen as an advantage, as it forces you to save and thereby helps you to pay off your mortgage quicker.

Call Suzanne, Owun or Costa in the office on 02 9517 1818, or email to discuss your options. Or, if you feel like dropping in at our office, we are located at Suite 106, Flourmill Studios, 3 Gladstone Street, Newtown 2042. Be sure to share our blog on Facebook and Twitter and let others join the conversation!

Posted in: Home loans

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