An introduction to redraw and offsets.
If you’re planning to buy your first home or investment property, the chances are you’re also trying to get to grips with a number of home loan features. Two of the most popular features are loan redraw facilities and offset accounts. Both can take years off your loan term and potentially save you thousands of dollars in interest at the same time.
But what exactly is a redraw facility and an offset account? And what’s the difference between the two? Below, we cover the pros and cons of each feature, and why your own financial goals and personal circumstances matter when deciding what’s right for you.
What's a redraw facility?
Redraw faciilities are a standard feature on most home loans. Simply, it allows you to 'redraw' additional repayments you have made to your loan that are in excess of your minimum repayment.
If you have excess funds, or can make regular additional repayments, having a redraw facility on your loan provides a great way to save money as you are reducing the interest on your loan - but still having the flexibility to access these funds if required.
Bear in mind that some home loans with redraw facilities will charge withdrawal fees and access to your funds may not be immediate.
What's an offset account?
An offset account is a transaction account linked to your home loan, and it works just like an everyday bank account. You can deposit your salary into the account and use a debit or eftpos card to make purchases whenever you need to.
You can also use the account to pay household bills such as utilities and insurance premiums.
An offset account 'offsets' your home loan balance daily, meaning you’re only paying interest on the difference between your principal loan and the balance in your offset account.
Here's an example of an offset account scenario:
Let's say you have a home loan of $200,000 and set up a linked offset account with an initial balance of $10,000. In this case, your home loan interest is only calculated on the difference which is now $190,000.
Even though your offset account balance will fluctuate with monthly deposits such as your salary and your everyday transactions such as groceries, you only ever pay interest on the $200,000, less the daily balance held in your offset account.
Is a redraw facility better than an offset account?
Like any big financial decision, understanding your financial goals and looking at the bigger picture is crucial. If you’re focused on repaying your home loan principal as quickly as you can, then a redraw facility may be an option.
But if you would like to reduce the amount of interest owing over the lifetime of your home loan and still have instant access to your cash, then an offset account may be another choice.
Have a home loan with Beyond Bank?
Learn more about our Mortgage Offset Account
First home buyer?
Buying your first home is an important life decision and our First Home Buyers Guide will take you through it, step by step.
We're here to help.
Prefer to talk to someone?
Our Lending Team are available to chat through any questions you have about the home loan journey.
Book a meet upUseful Links.
Please read this important information.
| * | Unlimited additional repayments available on Variable Rate Loans. Repay an additional $25,000 per year on any of the Fixed Rate term without fee or penalty. Additional repayments over $25,000 per year to a Fixed Rate term will result in a break cost being payable. |
| + | Minimum redraw amounts may apply. Free redraw in-advance amounts at any time through Internet Banking and Mobile Banking. Fees apply for staff-assisted redraw. An amount equivalent to the next scheduled repayment for the loan cannot be redrawn from the in-advance amount. |
| ∼ | Please note that transfers made on Internet Banking and Mobile Banking can take up to 24 hours to process. For immediate transfers please call us on 13 25 85 or visit a branch. |
| All applications for credit are subject to Beyond Bank’s credit assessment criteria. Terms and conditions are available on request. Fees and charges apply. This information is available on our website at beyondbank.com.au/about-us/corporate-governance/disclosures, by calling us on 13 25 85 to request a copy or by visiting a branch. | |
| This information is of a general nature only and does not take into consideration your objectives, financial situation or needs. The information must not be relied upon as financial product advice. Before acquiring any product you should read the relevant guides, Product Disclosure Document, and consider whether a product is suitable for your circumstances to decide if a product is right for you. | |
| All loans are provided by Beyond Bank Australia Ltd ABN 15 087 651 143 AFSL/Australian Credit Licence 237856. © 2024. |