We are looking at a new loan and want to know what the difference is between redraw and offset account. Does interest rate change if we did have the offset?

Hi Drew

Thanks for your enquiry regarding redraw and offset.

The main difference is how you like to have your money. Some people like to be able to see the money separate to the home loan so they know they have savings, others like the home loan balance at a lower amount, so your decision does come down to personal preference.

The interest rates if you have a loan with redraw or offset are normally the same, however when you have money in a linked offset account you will normally see on a home loan statement the benefit you receive from this amount of money (the amount of interest you have saved). Keeping in mind as well that offset accounts are normally only available on a variable interest rate loan whereas redraw is often available on variable interest rate loans and sometimes on fixed interest rate loans.

Hope this information helps and I am more than happy to answer any other questions you may have either by phone (0430 351 242) or by private message.

Have a great day!

Kathleen McCormick
Finance Consultant
Search Mortgages

Hello Drew,

Kathleen has nailed it, its primarily personal preference.
My clients who choose offset over redraw usually do so with a bigger goal in mind.

In most cases, those clients like to have the benefit of the funds offsetting interest against the mortgage - but keep the funds "Liquid." They are slightly easier to use if you need them.
Use them for what???
Hopefully not for a new car, boat or holiday!
Generally - for a deposit on another property for investment.
It does indeed depend on what your long term goals are.

Im sure you may have done a little research? What are you leaning towards? Why?

Jason Hulbert
Finance Specialist
Online Home Loans
Port Melbourne.
0477 402 710

Hi Drew, thank you for your question.

Offset accounts and redraw facilities are home loan features that allows you to use extra savings to reduce the balance of your loan and thefore reducing your interest repayments on the home loan.

An offset account is a savings or transaction account that is attached with your mortgage account. The savings or money that you have "parked" or deposited in the offset account will work against the interest you're paying on your loan. So for example, if you have a loan worth $500,000, and have $20,000 in your offset account, you will only pay interest on the difference which is $480,000 instead of the full loan amount.

In contrast, a redraw facility enables you to deposit any savings/money you may have directly into your home loan account. You can then redraw from the loan any funds that are in excess of your regular repayments.

Offset accounts are generally more expensive than your basic homeloan. The interest rate is usually higher too and there are also bank fees and charges that is associated with an an offset account.

I hope this helps! If you need to discuss further, please contact me and I will be more than happy to assist.
Regards, Melissa Huynh Finance Broker 0428 204 143 Melissa.huynh@onlinehomeloans.com.au

Hi Drew

Very good question and one many of us most likely take for granted at the moment as the majority of lenders will offer the offset as part of a package deal which means an ongoing fee of some sort with a lower rate.

Redraw means you are taking money you have access to straight from the mortgage. This is money where you have made extra repayments over and above your lender required amount.

This is transferred to another account like a savings account so you will then use that money (ATM or eft pls or net transactions). It also takes time (sometimes up to 2 business days) especially if you transfer it from a different bank.

The offset means pretty close to the same thing in that it allows you to access money over and above your requirements. But the account is not the mortgage itself (it is a seperate account) and you can pretty much use it straight away without the need to transfer it anywhere.

Whether you choose to have an offset or a normal loan with redraw however depends on your specific set of circumstances and needs. A good broker (or banker) should explain that to you when you meet.

Hope that answers your question.

Love to continue the conversation.

0400889022
Dien

Hi Drew

Ben from Aussie Unley here.

Essentially they do the same thing. Additional money paid into either an attached offset account, or into the loan itself will reduce interest charged by the lender, calculated daily and charged monthly.

Typically (but not always) there are fees to have an offset account. These range from monthly fees of $5 or $10 a month, through to $395 per annum for professional package type loans.

Redraw is a clunkier way of using the additional additional cash to reduce interest. With an offset, while there are fees, they are must more versatile and transactional. Whereas, redraw must be drawn into an account to then be used rather than be able to be used directly from an offset account.

In all - both reduce interest. More freedom with an offset, but have fees attached. The fees are usually justified if your personal banking habits are more complex.

Usually all products with an offset, will also have redraw.

But, some products without the offset account can attract cheaper rates.

Best to chat with a broker and look at the best option to suit you, factoring rate fees and charges.

Ben Slater
Aussie Unley
08 8271 2001

Hi Drew,

Great question.

My colleagues have all addressed the fundamentals of offset accounts and redraw Loans. Loan purpose is also important as to helping you decide which loan you settle for as effective use of offset accounts can be beneficial in reducing your loan quickly.

Fundamentally it comes down to how you manage your money. If you are comfortable having liquidity, 'access to cash', then an offset allows you the full transactional benefits of a bank account. A redraw 'holds' your money in your loan account until you would like it, often requiring an extra step or slight time delay until you get your money transferred, this could deter you from making that spontaneous purchase you may not really need.

A redraw is often found with basic Loans with little or no fees, a offset is a more featured loan that often attracts fees and higher rates. I do have a couple of lenders that can provide fee free offsets for the life of the loan at market competitive rates.

Please feel free to contact me on 0448120702, message or email if I can be of further assistance

For most lenders having an offset costs $10+ per month and redraw nothing - some lenders have no extra cost. Most fixed loans also have no offset - but come do.

Hi Drew S,

I think the comments above have addressed the usage of offset and redraw and both provide a similar ability to reduce interest costs and repay your home loan quicker.

Another important consideration when determining the offset over redraw, is this loan I am guessing is for your home? If a goal is to buy a new home in the future and then make this current home an investment property, then an offset is a great way to maintain the limit and same balance on your current loan and focus on increasing your savings in the offset.

Once you do upgrade your home you now can use all the money in your offset to reduce your non deductible debt. Your old home debt is now deductible and you have maximised its performance here.

This is a great conversation to have with Announcer where you can have the deal team being Financial Adviser, Accountant, Lawyer, Property Adviser ....and me to ensure we set the correct platform today to achieve the best future financial outcomes.

Happy to have a chat.

Chris Booth
www.announcer.com.au
02 9251 5558
0402567384

It can and unless you have significant amount of free money the extra cost each month plus higher rate with many lenders does not save you any $

Offset account does come with charge by interest in most cases,
Including and offset account can be beneficial if you have the right structure in place would you like to give me a call?