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Redraw vs offset: what’s the difference?

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.

graphic explaining redraw facilities vs offset accounts

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


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