If you’ve been looking to get a home loan on the Sunshine Coast and searching for ways to reduce home loan repayment monthly amount, you might have come across offset accounts and redraw facilities – both of which are standard home loan features.
But how do redraw and offset facilities differ? Is one better than the other?
Here, we’ll talk about the two options and the benefits they offer so you can make an informed decision. Our top tip is to talk to our expert team to ensure you are getting the right home loan advice.
Offset Accounts – The Basics
An offset account is a transaction account that’s linked to your home loan. Much like a regular bank account, your offset account can be used to make deposits or withdraw from it through ATMs and make purchases with a debit card.
What makes it different from a regular bank account is that it works like a high-interest savings account. When you keep money in an offset account over a specific period, you’re able to lower the amount of interest charged on your home loan.
The higher the balance and the longer you hold the money in your offset account, the less interest you’ll end up paying and the sooner you’ll be able to pay off your loan. You can also gain tax benefits by using an offset account, as money held in an offset account doesn’t earn any interest; hence, it isn’t considered taxable income.
Here, it’s important to note that:
- In general, offset facilities are only offered with variable-rate home loans, although some lenders make exceptions.
- You may have to maintain a significant amount of money in your balance to enjoy the benefits of using an offset facility.
- Not all offset accounts are 100%, as some lenders would offset your loan by a lower percentage.
Redraw Facility Features
A redraw facility lets you make extra repayments on your home loan and withdraw them as needed. The extra repayments are held separately in a fund you can access anytime, sometimes for a fee.
If you never withdraw money from the redraw fund, you can pay off your loan faster.
Another way to use redraw facilities is to make lump sum repayments on to your loan. This way, you’ll be able to reduce the principal amount of your loan ahead of the set repayment schedule.
However, note that:
- Some lenders limit withdrawal amounts and charge maintenance and withdrawal fees.
- Redraw facilities are usually not offered with fixed-rate or interest-only loans.
- There may be delays in requesting and accessing the funds.
- Extra repayments may not be claimed as tax deductions – unless you are able to demonstrate the funds withdrawn were for investment purposes.
Choosing Between an Offset Account and Redraw Facility
In deciding to go for an offset account or redraw facility, consider which goals are more important to you and how you handle savings.
- If you are a big saver who still wants to have convenient access to your cash and your goal is to reduce your interest repayments, then an offset account may be more suitable to your situation.
- If you can save smaller amounts regularly and wish to use these additional funds to reduce the total balance of your home loan, then a redraw facility might work better for you.
There are ways to access offset and redraw facilities on the same loan, depending on the lender and the home loan products they offer customers.
Got more questions or need assistance with getting the right home loan features for your needs? Please contact the Sunshine Coast Financial Solutions team today. We offer hassle-free home loan advice when you need it.
Meet Chris Wilson, the heart of Sunshine Coast Financial Solutions (SCFS). With over a decade of experience in finance, Chris started his journey as a broker with Aussie Home Loans in 2009. His dedication earned him the title of Rookie of the Year in 2010. By 2011, he was ready to build a business based on trust and strong partnerships.
