Offset Versus Redraw: The Winner Is…
If you have savings and you are paying off a home loan it is unwise to keep these savings in your bank account. By leaving the funds in your bank account you will earn interest on the funds. Any interest that you earn is taxable and by keeping the money in the account you will be losing money. Most people with savings will get a home loan that allows redraw or has an interest offset account. By using these features you will avoid paying tax on the money while reducing the amount you pay on the loan. This article will explain the difference between the redraw and the offset and determine which one is better.
What are Offset and Redraw
Before we compare offset and redraw we must know what they are. This section of the article will explain what these features are:
- Offset. An offset account is an account that allows you to deposit your savings into the account. By doing this the funds in the account will be offset against the loan when interest is calculated. So if you had a $100,000 loan and $20,000 in the offset account, you will only pay interest on $80,000. You will be able to take money from this account whenever you like.
- Redraw. A redraw facility is a feature of a loan that allows you to withdraw any additional payments you have made onto the loan. So by depositing your savings onto the loan account you will reduce the amount of interest that you pay and hopefully pay off the loan faster. The redraw gives you access to these funds.
What are the Benefits
As you can see both these features can be used to reduce the amount of interest that you pay. This section of the article will explain the advantage of each of the types of features:
- Offset. One of the main benefits of an offset account is that you will always have quick access to your money. The offset accounts will often come with an ATM card that will allow you to withdraw money at any time. There will usually be no charge for taking out money.
- Redraw. A redraw facility has an advantage over the offset account in that you are actually reducing the total value of the loan. This will help you pay off the loan faster. Furthermore, the redraw facility will often remove the temptation of spending the money because you may have to get approval to get access to any of the funds.
What are the Disadvantages
While both features have similar advantages, what are the disadvantages of the offset and redraw features. This section of the article will explain what the disadvantages of the offset and redraw features are:
- Offset. The offset accounts are disadvantaged in that you will not actually be paying off the loan with your savings. Once you reach the point where you are not being charged interest then you will still have to pay off the loan.
- Redraw. The disadvantages of the redraw facility are that you will not have immediate access to the money. Furthermore, you may be limited as to how many redraws you can make and may have to pay a fee each time you redraw.
While the offset and redraw features have different advantages and disadvantages it depends on how you want to use the money that will determine which feature is better. An offset account will be suited to people who want continual access to the money, while the redraw facility is suited to people that want to pay off the loan faster.
Featured Offset Home Loan
State Custodians Offset Loan
Awarded the 2011 Non bank Lender of the Year, State Custodians Standard Variable Offset Loan features zero fees, unlimited free redraw and 100% free interest offsetting.
- Interest Rate of 6.02%
- Comparison Rate of 6.23%
- Application Fee of $0
- Maximum LVR With LMI: 95%
- Minimum Borrowing: $150,000
- Maximum Borrowing: $1,000,000
Featured Redraw Home Loan
Loans.com.au – Dream Catcher home loan features a 100% redraw offset facility with a low variable interest rate and a $0 application fee for a limited time.
- Interest Rate of 5.85%
- Comparison Rate of 6.21%
- Application Fee of $0
- Maximum LVR With LMI: 80%
- Minimum Borrowing: $50,000
- Maximum Borrowing: $750,000
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- Redraw Vs Offset Accounts Explained
- Best Home Loan with an Offset Account
- Vantage Offset Loan
- Rapid Offset
- Mortgage Redraw Facilities – How Can They Be Used?
- How much can you Save with an Offset Account?
- What is the Definition of an Offset Account?
- Gateway Home Loan Redraw
- Members Equity Super Members Home Loan (SMHL) Offset
- 100% Offset and Redraw Home Loans
Top Home Loans
| Home Loan | Details | Interest Rate (p.a.) | Comp Rate^ (p.a.) | App Fee / Ongoing Fee | Max LVR | Min & Max Borrowing | |
|---|---|---|---|---|---|---|---|
 Loans.com.au - Dream Catcher | A home loan offer with a $0 application fee and one of the lowest available home loan interest rates. | 5.85% | 6.21% | $0 / $375 | 80% | $50,000 / $750,000 |
 
|
 Bankwest Online Home Loan | A low interest rate home loan with a $0 application fee and ongoing maintenance fees. This offer is exclusively available by applying online. | 5.97% | 5.97% | $0 / $0 | 80% | $100,000 / $1,000,000 |
|
 Illawarra Home Loans Bank Beater Home Loan | A low variable rate, beaten down even further by 0.05% p.a. after 5 years. | 6.07% | 6.35% | $0 / $345 | 90% | $250,000 / $1,000,000 |
|
 State Custodians Mortgage Company Standard Variable Offset Loan | Awarded Mortgage of the Year 2012 – this multi-award winner features 100% offset and a loyalty 0.25% rate drop after 5 years. | 6.02% | 6.23% | $0 / $345 | 95% | $150,000 / $1,000,000 |
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