The features of your home loan, such as redraw or offset accounts, can have a big impact on many factors of your finances, these include:

·        the amount of interest you pay on your home loan

·        how quickly you can reduce your loan balance

·        ease of managing your everyday finances

·        tax deductions on investment property expenses

Understanding which features are available with your particular home loan and the potential benefits of either a redraw facility or an offset account is something all mortgage holders should know.

Redraw and offset have one thing in common – they reduce the amount of interest you are charged by your lender. If, for example, you have a current loan limit of $600,000 and deposit $20,000 into either an offset account or in additional repayments into redraw on your home loan, you will only be charged interest on $580,000 (i.e. $600,000 minus $20,000).

Redraw and offset have one thing in common – they reduce the amount of interest you are charged by your lender. If, for example, you have a current loan balance of $600,000 and $20,000 in either an offset account or in available redraw on your home loan, you will only be charged interest on $580,000 (i.e. $600,000minus $20,000).

There are differences between the two features.

Home Loan Redraw

This is a facility that sits within your home loan. When you make additional repayments on your loan, you accumulate available redraw. Depending on your loan terms & conditions, you can transfer / redraw, these additional funds.

Pros:

·        In most cases, there is no additional charge fora redraw facility.

·        Less temptation to spend as to redraw any funds, you will be required to transferred them out of the home loan into a standard transaction account before they can be used for other purposes.

Cons:

·        Additional repayments, sitting as redraw on your home loan reduce the loan balance so if you have an investment loan, this minimises the amount of tax deductions you can claim.  

·        Less flexibility in accessing & managing your everyday finances.

Offset Accounts

This is a normal transaction account, that you use like any other transaction or savings account, however, it is linked to your home loan. You can deposit or withdraw funds from an offset account as you please.

Pros:

·        Greater ease of financial management

·        Some loans allow you to have multiple offset accounts which provide greater management of your everyday finances

·        Interest saved from an offset account is not tax deductible

·        Greater investment property tax deductions

Cons:

·        Most loans with an offset account charge an annual fee

·        In most cases, offset accounts are only available with a variable loan (exceptions apply)

Contact an Assured Lending Mortgage Broker today to see which loan feature would best suit your specific financial needs.

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