What is a redraw offset account?
One question we get asked all the time is “what is a redraw offset account and how can I benefit from using it?”
Put simply, a redraw offset account is a separate account linked to your home loan where you can deposit money (e.g. from savings or your pay) and rather than earn credit interest on that money, use the money to reduce the interest payable on your home loan. Your money is at call, so you’re able to redraw it anytime you want, using your Visa Debit card attached to the account.
The benefit of putting funds into a redraw offset account is that we consider this money when we calculate your interest repayments. That is, when we calculate your home loan interest we reduce the amount of your home loan balance by the amount you have in your redraw offset account. So you’ll pay less interest which could help you pay your home loan off sooner.
To give you an example: Just say your loan balance (amount you owe us) was $400,000 and you had $40,000 in your redraw offset account. Instead of calculating interest on a home loan balance of $400,000, we’d only calculate it on a balance of $360,000 ($400,000 - $40,000). So you’d pay less interest.
The saving that you get is called an offset benefit and is subtracted off your loan amount. So your benefit will slowly reduce your loan balance which could help you to pay your home loan off sooner.
Another example, based on our current dream loan express interest rate of 6.69% with a 30 year loan term, and the above loans and offset amounts, you would pay your loan off in 23 years, 10 months. Saving you 6 years, 2 months and a massive $127,188.44.
All of our variable rate loans are fully featured so you have the option of a redraw offset account with a visa debit card included.
Also it’s important to note that our redraw offset account is 100% offset. That means we take into account all of your money in your redraw offset account when we calculate your benefit. Not all lenders do this, some might only take a smaller percentage into the calculation. It is important that you consider the loss of credit interest on your money, and the percentage being offset, when looking at a loan with this facility.
I also recommend that when you are considering anything financial, that you do the calculations and get independent financial advice which is specific to your circumstances.
By Marie Mortimer. You can follow Marie on Google+
Image credit: brainloc