Do you know the difference between a home loan redraw facility and an offset account? While both can help you save on interest, they work in very different ways. This guide explains what a redraw facility is, its pros and cons, and why a 100% offset account is often the superior choice for Gold Coast homeowners seeking flexibility and control over their finances.
Paying a little extra off your mortgage is one of the smartest financial moves you can make. But what's the best way to manage those extra funds, and how easily can you access them if you need them for an emergency or an opportunity?
This is where understanding the difference between a redraw facility and an offset account becomes crucial for Gold Coast homeowners. While they seem similar, they work in very different ways.
What is a Redraw Facility?
A redraw facility is a standard feature on most variable rate home loans. It allows you to access any extra repayments you've made that are over and above your minimum required payments. In simple terms, you are 'redrawing' money that you have already paid off your loan principal. It directly reduces your loan balance, which is great for saving interest.
However, there are some important things to know:
- Once you pay the extra money into your loan, it technically becomes the lender's money.
- Lenders can sometimes restrict access, charge fees for withdrawals, or even cancel the facility.
- Using a redraw can have complex tax implications if the property ever becomes an investment.
The Superior Alternative: The 100% Offset Account
A 100% offset account is a separate, everyday transaction account that is linked directly to your home loan. The balance in this account is offset against your loan balance, and you only pay interest on the difference.
- Example: On a $500,000 loan, if you have $50,000 in your offset account, you only pay interest on $450,000.
The key difference is that the money in your offset account remains 100% yours. You can access it anytime, just like a normal savings account, with no fees or restrictions.
Redraw vs. Offset: The Key Differences
FeatureRedraw Facility100% Offset AccountOwnershipYou are accessing funds you've already paid to the lender.The money is 100% yours, held in a separate account.AccessMay have fees, limits, or require a request to the bank.Instant access via a debit card, online, or at an ATM.FlexibilityLess flexible. Lenders can change the terms.The ultimate flexibility and control over your cash.Best ForBasic interest saving on a no-frills loan.Homeowners who want a powerful tool to manage their cash flow, save interest, and pay their loan off faster.
Is Your Loan Working For You?
While a redraw facility is a useful feature, a 100% offset account provides far greater flexibility and control for most homeowners. If your current loan doesn't have this feature, it might be time for a review.
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