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How Can Redraw and Offset Accounts Can Save You Money

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Redraw facilities and offset accounts can be beneficial for borrowers as these allow you to reduce the balance of your home loan. This means the interest charged will decrease when you make weekly or monthly loan repayments. 

Redraw Facilities

When we speak about redraw facilities, you can deposit extra funds into your home loan account. As a result, you can redraw an amount equal to the extra repayment in the future for any purposes. For the time being, this extra payment will lower the interest charged when you make weekly or monthly loan repayments. 

However be careful with the restrictions, especially on the amount that can be withdrawn and when. This usually depends on whether you have a fixed-rate or variable loan. In most cases, institutions only allow you to redraw if you have a variable-rate loan. For fixed-rate loan, there is limited access given by the bank or lender.

You must understand how a loan’s redraw facility works because there could be fees and other restrictions that might outweigh the benefits. As always, ask the experts before agreeing to anything. 

Offset Accounts 

Remember, offset accounts work like savings accounts that function alongside your existing home loan. You can save interest charged from your mortgage in the offset account, and you can have a debit card for simple withdrawals. 

With 100% offset accounts, you can even earn interest equal to the interest you pay on your loan. It simply means instead of earning savings account rates, you earn home loan account interest rates on the money in the offset account. 

So for example you have $10,000 in  your 100% offset account. Rather than paying interest on your $100,000 on the loan, you are just paying interest on $90,000. This is a good deal. 

This type of account sometimes comes with account fees but it’s worth the interest savings. Additionally, there are less restrictions to 100% offset accounts. It’s flexible, depending on the lender. 

Final Words

You must consider how accessible you want your extra money to be. If you have already identified this, it’s easier to decide whether you want an offset account or a redraw facility. For more reliable loan advice, check out the other articles here in Excellence Finance.


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