Borrowers are often presented with various financial options in home loans that can help them save money and manage their repayments more effectively.
When you take out a home loan, you have several different options for managing your finances. Two popular choices are the Redraw Facility and the Offset Account. Both options can help you save money on interest, but they work differently.
Offset Account
An offset account operates as a linked savings account to your home loan. The account’s balance is used to offset the outstanding amount on your home loan, resulting in reduced interest payments. For instance, if you have a $750,000 home loan and $50,000 in your offset account, you will only pay interest on $700,000.
The greatest advantage of an offset account is that it can act as a substantial “discount” on your home loan interest. The more money you keep in your offset account, the greater the discount, leading to lower overall interest payments. Additionally, an offset account offers the flexibility of a regular savings account, enabling you to make withdrawals, transfers, and payments whenever needed.
Pros
Reduce interest repayments: By maintaining a higher balance in your offset account, you can significantly decrease the interest you pay over the life of your loan.
Make your money work for you: An offset account allows you to save money and offset interest, providing a unique opportunity to put your funds to good use.
Cons
Fees for an offset account: When considering an offset account, it’s important to know that fees might be associated with its setup and maintenance.
At Rate Money, we understand the significance of providing tailored solutions for our customers’ unique needs. That’s why we offer diverse home loan options, some of which come without incurring any offset account fees. This way, you can choose the option that best aligns with your financial preferences and enjoy the benefits of an offset account without additional costs.
Redraw Facility
On the other hand, a redraw facility empowers borrowers to make extra repayments in addition to their regular loan repayments. These additional funds can be “redrawn” or accessed for home renovations or unforeseen expenses.
The money held in the redraw facility counts against the balance of your home loan, leading to reduced interest payments. Effectively, it acts as a pool of funds in your home loan account on top of the balance. However, it’s crucial to recognise that regular repayments will gradually reduce the extra funds in the facility over time.
Pros
Take out extra repayments and increase cash flow in troubling times: During challenging financial periods, the redraw facility becomes an invaluable resource, offering easy access to additional funds to meet your liquidity needs.
At Rate Money, we take pride in providing a diverse and flexible range of home loan solutions. The majority of our products have a generous redraw limit of up to $20,000 per annum. Should you require a higher amount to be redrawn, our dedicated customer service team is readily available to assist you in processing your request promptly and efficiently?
Redraw encourages extra repayments and lowers interest: Knowing that you can access the funds in times of need may motivate borrowers to make more frequent extra repayments, thus further reducing their overall interest burden.
Cons
Redraw fee: Like the offset account, the redraw facility may have associated fees that warrant careful consideration before deciding. Understanding these costs is crucial to making an informed choice that aligns with your financial goals.
At Rate Money, we prioritise our customers' needs and offer a wide range of features in our home loan products. We take pride in providing a customer-centric approach, so we have chosen not to charge a redraw fee across various products. This ensures that you can access your funds when needed without any additional burden, enhancing the flexibility and convenience of our offerings.
Limit to the amount that can be withdrawn: Lenders often enforce certain restrictions on the maximum redraw amount allowed at any given time. Awareness of these limitations is vital to prevent surprises when you require access to your funds.
However, with Rate Money, we take pride in offering a more generous option. Across our diverse range of Home Loan products, we empower you to withdraw up to $20,000 annually, providing greater flexibility and peace of mind during challenging financial situations.
In conclusion, the offset account and redraw facility offer valuable advantages for homeowners who want to enhance their mortgage management. For those seeking to reduce interest payments and gain flexibility proactively, an offset account is an excellent choice, leading to substantial interest savings. On the other hand, a redraw facility provides an added layer of financial security by granting access to extra repayments during times of necessity.
Reach out to our Rate Money Home Loan Specialists team today, and let us guide you towards the optimal solution when searching for a Home Loan. We are committed to helping you make the right decision that aligns with your financial goals and secure a brighter future for your homeownership journey.
