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When it comes to paying off your mortgage, every dollar counts. For Australian homeowners, two of the most powerful tools to reduce interest and shorten the life of a loan are the offset account and the redraw facility. While both features can save you money, they work in different ways. Understanding how to use them together can help you pay off your home loan faster and achieve financial freedom sooner.
An offset account is a transaction account that’s linked directly to your home loan. The balance in your offset account is deducted from your loan balance when calculating interest.
Example:
If you owe $500,000 on your mortgage and have $50,000 in your offset account, the bank will only charge interest on $450,000.
Benefits of an offset account:
A redraw facility lets you make additional repayments directly into your home loan and then withdraw (or “redraw”) those funds later if needed.
Example:
If your minimum repayment is $2,500 but you pay $3,000, the extra $500 reduces your loan balance and interest charged. If you need the money back later, you can redraw it (subject to your lender’s conditions).
Benefits of a redraw facility:
Both features reduce the amount of interest you pay, but they work differently:
Offset Account
Redraw Facility
The smartest approach is to use both an offset account and a redraw facility together:
Interest on Australian mortgages is calculated daily and charged monthly. This means the more you reduce your daily loan balance, the less interest you’ll pay. By using an offset account and redraw facility wisely, you could save tens of thousands of dollars in interest and cut years off your loan term.
Both an offset account and a redraw facility can be powerful tools in managing your mortgage. By understanding how they work and strategically combining them, you’ll not only save on interest but also reach your goal of paying off your home loan faster.
Using an offset account and redraw facility effectively can help Australians cut years off their mortgage and save thousands in interest. An offset account reduces interest by linking your savings directly to your loan balance, while a redraw facility lets you access extra repayments if needed. This guide explains the difference, their benefits, and how to maximise both to pay off your home loan faster.
Using an offset account and redraw facility effectively can help Australians cut years off their mortgage and save thousands in interest. An offset account reduces interest by linking your savings directly to your loan balance, while a redraw facility lets you access extra repayments if needed. This guide explains the difference, their benefits, and how to maximise both to pay off your home loan faster.
Using an offset account and redraw facility effectively can help Australians cut years off their mortgage and save thousands in interest. An offset account reduces interest by linking your savings directly to your loan balance, while a redraw facility lets you access extra repayments if needed. This guide explains the difference, their benefits, and how to maximise both to pay off your home loan faster.
