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How redraw and offset account can save you money?

Both offset account and redraw facilities work in a similar way. They both allow you to reduce the interest that you have to pay to your home loans.

Redraw facilities allows you to deposit spare income into your home loan account, enabling you to redraw a sum equal to the extra repayment amounts in future.

In the meantime, the extra money that you paid will lower the amount of interest charged while still giving you access to your money.

However, there may be restrictions on how much money can be withdrawn and when.

For redraw, it depends on whether the facility applies to a fixed rate or variable loan. Most institutions only allow redrawing from a variable mortgage or fixed rate loan but with limited access.

It is essential to find out how a loan’s redraw facility works before taking it on, as the fees and restriction attached might outweigh the benefit of interest savings.

Deciding between an offset account and a redraw facility on your home loan largely depends on how accessible you need your extra money to be.

Offset accounts just like a savings account that offset the interest against your home loan. You earn interest on the money in the offset account, and you often will have a debit card attached for withdrawing cash from ATM.

Let’s say that you are paying five per cent interest on your home loan and you are earning two per cent interest on your regular savings account. If you set up 100 per cent offset facilities with your saving account, instead of receiving two per cent on your saving account, you are earning interest equal to the interest you are paying to your home loan. Rather than earning savings account rates, you are earning same home loan account interest rates on the money held within the offset account.

For example, if you have $10,000 in your 100 per cent offset account, instead of paying interest on your $100,000 loan, you are only paying interest on $90,000 loan.

Offset accounts like many savings accounts, it often comes with an account fee, but the cost may be worth the interest savings and the added flexibility compare to redraw facilities.

Finding a loan that matches your needs is a lot easier with an expert on your side as they can access multiple lenders panel at the same time. Speak to Kevin Poh on 0415820016 to find a loan that matches your current needs and future goals.

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