Redraw and offset – are these loan features right for you?
There’s a lot more to a home loan than just the interest rate. The features of the loan can also have a big impact on your total mortgage costs and repayment flexibility, which is why it’s important to understand the potential benefits of a redraw facility and an offset account.
Redraw and offset have one thing in common – they reduce the amount of interest you get charged. If, for example, you have $500,000 outstanding on your loan and $40,000 in either redraw or offset, you’ll be charged interest on only $460,000 (i.e. $500k minus $40k).
But there are subtle differences between the two features.
Redraw is a facility that sits within your loan. The way you accumulate money in redraw is by making extra home loan repayments. The lender will allow you to borrow back (or redraw) these extra repayments, subject to certain conditions. But because this money belongs to the lender, it’s technically possible the lender might decide one day not to allow you to reclaim the money, or change the conditions of redraw.
Offset is a separate transaction account that’s linked to (but separate from) your home loan account. The way you accumulate money in offset is through deposits – for example, salary payments. The money in your offset belongs to you, so the lender can’t prevent you accessing it.
- Pros: you can use redraw and offset to reduce your interest bill and pay off your home loan sooner.
- Cons: your lender may charge you a higher ongoing fee or higher interest rate to access these loan features. Also, you may be charged a fee for each redraw transaction.
- The federal government is aiming to improve housing affordability by increasing the supply of housing, which would be expected to reduce demand and put downward pressure on prices. As a result, the government is attempting to facilitate the building of 1.2 million homes in the five years from July 2024. So what does the latest homebuilding approvals data show?
- Unfortunately, it suggests the government will struggle to achieve its target.
- In the five years to September 2024, only 937,950 approvals were issued. This is a drop-off from the five years to September 2023, when 949,469 approvals were issued, according to the Australian Bureau of Statistics.