Tue 17 Oct 2023

OFFSET VS REDRAW

A common question being asked by my clients is “what’s the difference between offset and a redraw account”?

Offset Account is a transaction Account which is linked to your home loan Account and can be used for day to day banking transactions.

A Redraw account is a Home Loan Account which allows borrowers to pay extra repayments on their home loan account.

How it works

A key benefit of these accounts is that the interest is charged on the difference between the Loan amount and the amount sitting in the offset account/ extra repayments made in redraw loan account. This interest saved goes directly towards reducing the principal and this feature enables you to repay your home loan faster.

Purpose

It is important to know your goals or purpose before deciding the offset or redraw. Whether you want to withdraw the funds for personal or investment purposes can have an impact on tax implications ( for further advise on tax please refer to your accountant)

Fees

Offset accounts do attract annual fees because of the extra features and benefits attached to it. Redraw accounts are usually no frills attached and come at no extra cost. However, that doesn’t make it a better or worse option from savings prospective since every time you withdraw money you may be charged a fee for each transaction which varies from bank to bank

Access

The offset is an everyday transaction account where you save interest on the daily pro-rata basis and have an access to money whenever you want, However, with redraw, these extra payments can be withdrawn when required by making a request to the bank Therefore they may not be accessible the very same day

Therefore structuring the loan is an important aspect to assist you to reach your financial goals

 

For further details or assessment of your existing accounts feel free to give a non obligatory call to Isht Kumar from reflection finance on 0430340443