Redraw facility

What is a redraw facility?

So, what is a redraw on a home loan? With a redraw feature, you can make additional repayments into your home loan (above the minimum repayment amount), which reduces the balance owing on your home loan. And that means you’ll be paying less interest on your home loan and could pay down your home loan sooner.

It’s handy because on variable rate loans, you can withdraw the additional repayments made at any time ($100 minimum) if you need access to those funds. So if circumstances change and you need to access the money you’ve used on extra repayments, you can. Just remember, this will increase the balance owing on your home loan by the amount withdrawn and your interest costs will also adjust accordingly.

Offset account

What is an offset account?

On the other hand, what is a mortgage offset account? The offset feature allows you to put money into a savings account linked to your home loan. Whatever balance you hold in this account will offset against the balance on your home loan. This reduces the interest costs on your home loan, meaning you will pay more of your principal component of the loan and could pay off your home loan sooner.

Because it’s in a separate account, you are free to use this money whenever and however you like, just like a normal online account. However any money you take out of this account will reduce the amount offset against the balance on your home loan.

What's the difference?

What is the difference between redraw and offset account?

When it comes to offset account vs redraw facilities, there are some similarities and some differences.

  • Both features can help to reduce your interest costs and pay down your home loan sooner. But they do that in different ways. The offset feature is on a separate account where you may have money regularly coming in and out of. While the redraw feature is a feature on variable rate loans, where you can withdraw additional repayments made (above the minimum repayment amount) when you need to.
  • There could also be different tax implications when using either feature (particularly for investment properties) if you are seeking to make the interest charged on your loan tax deductible.

Just remember, when considering redraw vs offset, not everyone’s situation is the same and what’s suitable for one person may not be suitable for another. So, it’s important to consider your own individual situation.

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