Redraw and Offset: A Step Ahead
While interest rates remain low, it pays to stay ahead of your minimum monthly repayments by using a redraw facility or offset account.
Since mortgage rates have dropped, nearly one in three suburban families continue to make more than the minimum required monthly home loan repayment*, a choice that will save years off their mortgage and thousands of dollars in interest.
Borrowers who are tempted to lower their repayments and put the money into a savings account should keep in mind that savings are taxable and paying off the mortgage is not.
If you are able to do without the additional funds, redraw and offset accounts offer a convenient place to store money that you can still access for a rainy day. For as long as you have extra funds in your mortgage you have the security of knowing you have a buffer to cope with hard times as well as the financial stability to weather any future interest rate rises.
What is a redraw facility?
It is a way of making additional repayments on your mortgage and then having access to this money again when you need it, such as for a new car or holiday.
Redraw is offered as a feature of most home loan products, with fees and conditions varying from one lender to the next.
What is an offset account?
It is a savings account that is connected to your home loan, where you deposit money into it and use it to pay off your bills and daily expenses. You don't earn interest on the money sitting in your offset account; instead the balance is offset against your mortgage amount.
Like redraw, offset accounts differ in their fees, terms and conditions. Some are fully offset (100%) while others are only partially offset and may be conditional on a minimum account balance or withdrawal amount.
As your mortgage broker we can advise you of the suitability of different lenders' redraw and offset accounts. Contact us to discuss the best option for your needs.
* May 2009 Mortgage Stress-O-Meter, Fujitsu Consulting.