An offset account allows you to reduce the interest charged on your standard variable rate or investment home loan while also giving you access to your money whenever you need it. It works like a transaction account in that you can put money in and take money out any time, but it’s linked to your home loan. The money you keep in an offset account can help reduce the overall interest you pay on your loan.
How does offset work?
Interest is calculated on your home loan balance minus the balance kept in your offset. So if, for example, you have a loan balance of $300,000 and $50,000 in your offset account, you’ll only pay interest on $250,000 of the loan balance. The higher the balance is in your offset, the more you’ll save on your home loan because interest will be calculated on a lower overall loan balance.
How can you use offset?
If your bank allows you to open multiple offset accounts, you may choose to allocate one account towards your bills and committed expenses, another towards your everyday spending, and so on.
Some banks charge fees for offset accounts or have limits on how many you can open, so always check the terms and conditions before opening one.
How does a redraw facility work?
A redraw facility is different to an offset account but can also help you save on your home loan.
Redraw allows you to access additional payments that you’ve made on your home loan. For weekly and fortnightly direct debit payers, only funds over and above the minimum required repayments will be available. However, the money in your redraw account may reduce over the life of your loan so that, by the end of your agreed loan term, both your loan balance and the available redraw will be zero.
For CommBank home loans, adjustments to your available redraw will occur on your monthly repayment date.
Is offset or redraw better?
Because an offset account works like a regular transaction account, you can use your debit card to make payments and transfer money in and out of it.
A redraw facility isn’t an account but a feature attached to your eligible home loan. While it does let you access additional repayments you’ve made on your home loan after adjustments, it doesn’t offer the same flexibility as an offset account.
Talk to a Home Lending Specialist about how offset accounts and redraw facilities could help your financial wellbeing
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