Which is best a home loan redraw or offset account?
Always an interesting question. The answer depends on how you want to run your home loan and associated cashflow and additional repayments. The specifics of a home loan redraw or offset account are as follows,
- Redraw-Most variable rate home loans and some fixed rate loans have the benefit of being able to make additional repayments into the loan. The main reason for doing so is to reduce the loan balance and associated interest charges. These additional payments can be redrawn at a future time if required.
- Offset Account-You could choose to store your additional repayments in an offset account rather than paying the monies into the loan account. This will have the same effect of reducing your interest charges as if you had paid the monies into your loan. The benefit with an offset account is that you don’t need to take the additional step of transferring the additional monies into the loan. A second benefit is that all monies in the offset account will help to reduce interest charges, not just the additional repayments. For more detail on how an offset account works please watch this short video Offset Account Video
How to choose between the two.
- Most offset accounts are linked to variable rate home loans. Variable rate home loans invariably have a redraw facility as well, so you can have the best of both options.
- If there is an additional monthly or yearly fee to have an offset account, the cost of the fee may outweigh the benefits of interest savings.
- Are you are intending to transact frequently from your additional repayments? If so an offset account may be more beneficial as your loan may have a redraw fee and minimum redraw amount.
- Are you intending to make regular additional repayments with no intention of redrawing? If so then a basic variable loan without an offset maybe more cost effective.
The choice of a home loan redraw or offset facility will ultimately depend on your cashflow, budgeting and spending habits. The choice of loan feature will be influenced by these habits. At Halogen Home Loans we help you understand these habits and match your type of loan so you can Increase Your Wealth with Smarter Finance.
Leave a Reply