Where an existing borrower has access to savings after they have purchased a property or accumulate a surplus each month (“excess funds”), these excess funds may be used to reduce the total interest cost on their home loan.
This can be achieved by being able to deposit excess funds or make additional regular repayments onto a home loan which can be accessed later (Redraw).
Another option is to place excess funds into a separate savings account with their lender where the lender will reduce the amount of interest charged on the loan by the amount held in the savings account (Offset).
Having a loan with Redraw or Offset does not reduce the regular loan repayments you are required to make.
What are the benefits of Offset and Redraw
If you have surplus income that you can save, having Redraw and Offset can help save time and money on your home loan.
Why would a borrower choose Offset over Redraw?
Some borrowers like to see clearly their savings held separately to their loan so an Offset account is better suited. An offset account is often used for a particular savings purpose (maybe a new car, holiday or renovations) so having the savings separate to the loan account is preferred.
Does it cost to have an Offset account or loan with Redraw?
Each lender will have separate policies on whether offset or redraw availability incurs an additional cost. Often these features may be included at no cost however the interest rate may be higher. Often loans described as “basic loans” by lenders will not include features such as offset and be made available at a lower interest rate.
How can I access my excess funds held in an Offset account or loan with Redraw?
Offset accounts are often more accessible (online, debit card, ATM or branch) whereas accessing funds held in a loan with Redraw may require a few more steps. Some lenders may limit the size and number of withdrawals from loans with Redraw. Fees may apply in both cases.
Can I have more than one Offset account?
Some lenders will allow more than one Offset account however most will only allow one.
