When it comes to managing your home loan, it's essential to explore the options that can help you save on interest and pay off your loan sooner. Two popular features that can assist you in achieving these goals are the redraw facility and the offset account. At Fidelis Financial, we understand the significance of these options, and we're here to help you comprehend the differences between them so that you can make informed decisions regarding your home loan.

Redraw Facility: Access to Extra Payments

A redraw facility is a feature offered by some home loans that allows you to access any extra payments you've made on your loan. Here's how it works:

Making Extra Payments: Suppose you make additional payments on top of your regular mortgage repayments. These additional payments can include lump-sum contributions or higher monthly repayments.

Building a Surplus: As you make these extra payments, they are credited to your home loan account. Over time, this accumulation creates a surplus or balance in your redraw facility.

Accessing Funds: If you ever need to access some of the extra funds you've paid into your loan, you can request a redraw. This means you can take out a portion of the surplus for various purposes, such as home renovations or unexpected expenses.

Flexible Repayments: A redraw facility offers flexibility. You can use it to your advantage by paying extra into your loan when you have the means to do so and then redrawing those funds when needed.

Offset Account: Reducing Interest Paid

An offset account is another valuable tool to help you save on interest and potentially pay off your home loan faster. Here's how it operates:

Separate Transaction Account: An offset account is a separate transaction account linked to your home loan. It functions like a regular savings or transaction account.

Deposit Funds: You deposit your savings, salary, or any surplus income into the offset account. These funds are treated as an offset against your home loan balance.

Interest Savings: The balance in your offset account is subtracted from the outstanding balance of your home loan when interest on your mortgage is calculated. As a result, you only pay interest on the difference between your home loan balance and the offset account balance.

Reduced Interest Costs: By maintaining a healthy balance in your offset account, you can significantly reduce the interest costs associated with your home loan. This can lead to interest savings and a shorter loan term.

Key Differences and Considerations:

Access to Funds: With a redraw facility, you can access extra payments made to your loan. In contrast, an offset account allows you to keep your savings separate while still reducing your interest costs.

Interest Savings: Both features can lead to interest savings, but the offset account typically offers more significant interest reduction potential, as it affects the daily interest calculation.

Tax Implications: There may be different tax implications for funds held in a redraw facility compared to those in an offset account. It's advisable to consult with a tax professional to understand the specific implications for your situation.

At Fidelis Financial, we understand that choosing between a redraw facility and an offset account can be a crucial decision in managing your home loan effectively. Our expert team is here to provide personalized advice and guidance tailored to your financial goals and circumstances. Whether you're looking to save on interest, pay off your loan sooner, or explore other loan features, we're committed to helping you make informed choices that align with your unique needs. Contact us today to learn more about how the right home loan features can benefit you.