When choosing a home loan, two common features borrowers often compare are an offset account and a redraw facility. Both can help reduce interest costs, but they work differently.
Understanding the difference can help you choose a loan structure that suits your cash flow, savings habits and long-term goals.
What is an offset account?
An offset account is a transaction account linked to your home loan. The balance in the account is offset against your loan balance when interest is calculated.
For example, if your home loan balance is $600,000 and you have $50,000 in an offset account, interest may be calculated on $550,000 instead of the full $600,000.
What is a redraw facility?
A redraw facility allows you to access extra repayments you have made above your required minimum repayment. For example, if you pay extra into your loan, you may be able to redraw those funds later if needed.
Key differences
An offset account usually provides easier day-to-day access to funds because it works like a normal transaction account. A redraw facility may be more restrictive, and some lenders may have redraw limits, processing times or fees.
Which option may suit you?
An offset account may suit borrowers who want flexible access to cash while reducing interest. Redraw may suit borrowers who prefer to keep extra repayments inside the loan and reduce the temptation to spend.
Investment loan considerations
For investment loans, the choice between offset and redraw can have tax implications. Borrowers should obtain tax advice before changing the structure of an investment loan.
How Nine Fincap can help
Nine Fincap can review your current loan structure and compare lender options with features such as offset, redraw, split loans and refinancing pathways.
Want to know if your current loan structure is working for you? Review My Loan Structure with Nine Fincap.
Disclaimer
This information is general only. Tax implications should be discussed with a qualified tax adviser. Approval and loan features are subject to lender policy.