How Does a Home Loan Offset Facility Work?

How Does a Home Loan Offset Facility Work?

You may have come across the term “redraw offset facility” or “offset account” when applying for a home loan in Australia. This feature allows to you offset any cash funds you hold, including your salary, against your loan balance and save on interest.

How does it work?

An offset works because you are only charged interest on the net balance in your home loan, being the loan balance minus the amount in the redraw offset facility or offset account. To illustrate, you have $20,000 in your savings account, and you owe $350,000 in your mortgage, the interest on your home loan will be calculated on $330,000. In other words, the money you have in your offset is deducted from the balance of your home loan - assuming you have a 100% offset account.

Your monthly repayments will still be the same, but more of it will go towards paying off the principal of your home loan rather than in interest. An offset account helps you pay off your mortgage quicker with less interest, while having the ability to access the money you have in your account.

Benefits of an offset account

An offset account can help you to pay off your home loan faster. This works whether you’re an investor or a home buyer.

Since an offset account is an everyday transactional account, it is very easy to withdraw money as you need it. You can ask your employer if they can put your salary into your account or redraw offset facility. 

Loans.com.au offers the feature of an redraw offset facility with our home loans. You can ask one of our lending specialists how you can benefit from this.   

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