Exactly What Is The Difference Between A Home Loan Redraw Facility And An Offset Account

Try to create a buffer into your mortgage by making additional repayments whenever possible. This will give you some leeway if you do find yourself in short term difficulties. You can do this either by means of making increased installments, or saving extra cash into an offset account.

A redraw facility on your home mortgage allows you to put extra money into the loan, ordinarily through larger ongoing home loan payments that you may withdraw again when you need it.

In other words, rather than generating (taxable) interest through your savings, putting your savings on the loan will save you money on your interest costs and makes it possible to repay your loan quicker. Meanwhile, you are still saving money for hard times. The main benefit of this kind of loan interest rate charged is generally much less expensive compared to a standard variable rate and it does not incur regular charges.

A few, although not all, lenders charge a fee to activate the redraw facility and/or a fee any time you redraw, thus these types of costs must be taken into account. As a result, it’s probably best used as a service in order to save funds for a large future purchase, such as a new motor vehicle, holiday or perhaps renovations, instead of obtaining money from it all the time.

These types of loans are usually best for low to medium salary earners that can put away that little extra every month.

By having an offset account, the balance is going to be offset against your home loan. Earnings is paid into the Offset Account so you use the Offset Account for any EFTPOS, cheque, online banking, and credit transactions. Whatever is in the Offset Account then will come straight off the mortgage, or 'offsets' the loan total for interest.

For instance, if you have $10,000 in your offset account against your $300,000 mortgage; you really just pay interest earned on $290,000. The extra income you retain in the offset account, the extra interest earned you will save on the mortgage. In effect you are usually not earning interest on your personal savings, but will be benefiting as what will be interest on savings is going to be calculated on a reduction on your home loan.

Your offset account can also be used as a savings account for a major purchase, or is sometimes used by people to ‘park’ money which they may need to easily access in the future - for instance, a couple starting a family some time in the next few years might take advantage of this option.

These types of loans will be suited to people on medium to high wage earners, as well as disciplined spenders because the extra income put in the offset account the quicker you pay-off your home loan.

To find out more on how a redraw facility or an offset loan could help you, talk to our professional and expert home mortgage advisers at Central Coast Mortgage Brokers, they will help to find you a home loan with a great low interest rate, and also fabulous loan options and benefits.