Offset account vs redraw facility: which is better?
When you take out a home loan, you are often presented with a range of features to choose from, including offset accounts and redraw facilities. Both options can be valuable tools in helping you manage your mortgage, but it's important to understand the differences between them before deciding which one to use.
Offset Accounts
An offset account is a separate savings account that is linked to your home loan. The balance in this account is offset against the balance of your mortgage, reducing the amount of interest you have to pay. For example, if you have a home loan of $500,000 and an offset account with a balance of $50,000, you only have to pay interest on $450,000.
The interest savings from an offset account can be significant over the life of your mortgage, particularly if you maintain a high balance in the account. Additionally, because the funds in an offset account are separate from your mortgage, you can still access them if you need to without incurring any additional fees or charges.
Redraw Facilities
A redraw facility, on the other hand, allows you to access any additional payments you have made towards your home loan. For example, if your minimum mortgage payment is $1,000 per month but you make a payment of $1,500, you can access the extra $500 through your redraw facility.
The advantage of a redraw facility is that you can reduce the balance of your mortgage and therefore the amount of interest you have to pay, while still having the option to access those funds if you need to. However, it's important to note that there may be fees and restrictions associated with using a redraw facility, such as minimum redraw amounts and transaction fees.
So, which one should you choose?
The decision between an offset account and a redraw facility ultimately comes down to your personal financial situation and goals. Here are a few factors to consider:
If you have a significant amount of savings and want to reduce the amount of interest you pay on your mortgage, an offset account may be the best option.
If you want the flexibility to access any additional payments you make towards your mortgage, a redraw facility may be more suitable.
If you're unsure which option is best for you, it's always a good idea to speak with a financial advisor or mortgage broker who can provide tailored advice based on your individual circumstances.
