When managing your mortgage, finding ways to save money is crucial. Fortunately, there are financial tools that can help reduce the overall interest charged on your home loan. Two such tools are redraw facilities and offset accounts. Both can help decrease the balance of your mortgage and reduce the amount of interest you pay, but they function differently and offer distinct benefits.
Understanding Redraw Facilities
A redraw facility allows you to make additional payments towards your home loan beyond the required monthly instalments. These extra payments are held within the facility as a credit against your mortgage, reducing your outstanding balance and, consequently, the interest charged.
The funds in a redraw facility can be accessed when needed, either partially or fully, by requesting them from your lender. This flexibility allows you to save on interest while maintaining access to your funds if necessary.
Understanding Offset Accounts
An offset account is a separate bank account linked to your mortgage. The money in this account is offset against your outstanding loan balance before interest is calculated. For example, if you have a $500,000 mortgage and $50,000 in your offset account, you’ll only be charged interest on $450,000. Maintaining a significant balance in your offset account over time can lead to substantial interest savings.
Key Differences: Accessibility of Funds
While both redraw facilities and offset accounts save you money on interest, they differ in how accessible your extra funds are:
- Redraw Facilities: You can access additional payments, but there may be restrictions or fees associated with withdrawals. This setup requires planning, as immediate access might not always be available.
- Offset Accounts: This functions like a regular bank account, allowing you to deposit and withdraw money as needed without penalties or restrictions, offering immediate access to your funds.
Choosing the Right Option for You
Deciding between a redraw facility and an offset account depends on your financial circumstances and goals:
- Redraw Facility: If you have a stable income and don’t need immediate access to extra funds, a redraw facility can help you save on interest while maintaining some flexibility.
- Offset Account: If you have irregular income or want immediate access to your funds, an offset account provides peace of mind. You can save money on interest while keeping your funds readily available for other purposes.
Factors to Consider Before Making a Decision
Before deciding which option suits you best, consider the specific terms and conditions offered by your lender for both redraw facilities and offset accounts. Evaluate associated fees, withdrawal restrictions, and the potential impact on your loan term and interest payments. Not all lenders provide both options, so it’s wise to discuss your needs with your mortgage provider or consult a reputable mortgage broker for guidance.
180 Finance is Here to Help
Understanding the differences between redraw facilities and offset accounts can be challenging, but you don’t have to make the decision alone. If you’d like to know more about these tools and how they can benefit your mortgage, please reach out to 180 Finance. Our team is ready to provide personalised advice and guide you in choosing the right option for your financial needs and goals.