If your home loan offers both an offset account and a redraw facility, you might be wondering whether it’s better to make additional repayments into your home loan to build up a redraw or to deposit money into your linked offset account. The best choice is based on your personal requirements and financial goals. Both options make you able to use your savings to minimise the interest paid on your loan, helping you pay off your home loan sooner.
What is a redraw facility?
A redraw facility is the best way to minimise the interest charged on your home loan amount. A redraw facility is an account that pools any additional repayments that you make on your home loan. After that, the funds in this account minimise your home loan balance and the interest amount you pay. Another advantage of a redraw facility is that you can redraw your additional repayments if you want. Therefore, if you plan to renovate and need some cash, you can use redraw facility funds.
How does the redraw facility work?
A redraw facility differs from an offset account but can still help you save on your home loan. Redraw lets you access extra payments you’ve made on your home loan. For those who make weekly or fortnightly direct debit payments, only the funds exceeding the minimum required repayments will be accessible. However, it’s important to note that the balance in your redraw account may decrease over the course of your loan, meaning that by the end of the loan term, both your loan balance and the available redraw funds could be zero.
- You can redraw the additional repayments you have made. For example, if you have made an additional repayment of $30,000, you can withdraw this amount.
- The more you have money in your redraw account, the more you will save in terms of interest.
- Money added to your redraw facility minimises the interest charged. For more information, you can contact Home Star Home Loans in Australia.
Offset account vs redraw
- Balance in redraw comes by making extra repayments. On the other hand, an offset account is just like your everyday bank account. You can choose the account to get your salary or any other regular payments.
- Funds in the redraw facility minimise the interest charged on your home loan. Money in your offset account is offset against your home loan balance and reduces the interest charged.
- You can make additional repayments to your redraw facility to increase the balance. On the other hand, you can add money to your offset account to receive the benefits of your income-reducing interest.
- It may take some time to access money from your redraw facility whereas, in an offset account, you can access money immediately.
Redraw or offset: Which is better?
An offset account and a redraw facility both have their advantages. However, what is the best will depend on your circumstances. Additionally, it also depends on the type of loan you have. If you make payments above the minimum for your home loan and have the occasional lump of cash to put away – then a redraw facility would be right for you. You can withdraw the money from your redraw account at any time when you need it – however, it will minimise the benefit of paying less interest on your home loan.
If you want to access instantly and the convenience of your bills and salary coming in and out of the same bank account, an offset account will be the best choice you can make. It depends on your financial circumstances to choose between redraw and offset accounts. You can speak to brokers at Star Home Loans in Australia to choose the right option.
Conclusion
By now, you know the benefits of choosing a redraw facility and offset account. Before deciding to choose between a redraw facility and an offset account, it’s good to speak to brokers at Star Homeloans in Australia. We have been serving our home loan and mortgage services across Australia for several years. So irrespective of where you are in Australia, if you need help with home loan services, you can speak to us.
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