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Redraw facility vs offset account

Feature Comparison: Redraw Facility vs Offset Account

Rates and fees last updated on

Both redraw facilities and offset accounts can help you pay off your mortgage faster, so what’s the difference between them?

If you want a home loan feature that can help you off your home faster, then you may want to a consider a home loan with a redraw facility or an offset account - or both. Redraw facilities and offset accounts allow you to put money against your loan so that you are able to pay off the loan faster.

Offset accounts and redraw facilities both allow you to put money against the loan, but a redraw facility allows you to put money straight on the loan while an offset account allows you to put money against the loan indirectly. Both types of facilities will reduce the amount of interest that you pay, while only the redraw facility will actually reduce the loan amount.

What is a redraw facility?

A home loan with a redraw facility allows you to borrow money you’ve already repaid and is usually offered with variable interest rate loans. A redraw facility allows you to be flexible with how you repay the loan. If you have spare money in your savings, you can pay this onto the loan.

For example, your minimum monthly loan repayments are $500. If you pay $700 each month for a period of 6 months you’ll have paid an extra $1200 on top of what you had to pay. A redraw facility allows you to access that extra $1200 if you need to, though borrowers only do this in the case of an emergency.

Related: Redraw on your loan with a debit card

What are the features of a redraw facility?

Money in a redraw facility will go straight against the loan. This will reduce the amount you pay in interest and help you pay off the loan quicker. However, many redraw facilities will come with additional fees for withdrawing and depositing money. The providers may charge these fees straight away or they may give you a few free redraws and deposits a month. There may also be restrictions on how much and how often you can redraw in any given period. Check the terms and conditions of your home loan contract for specific information about redraw restrictions.

About fixed rate home loans with redraw facility

Compare Home Loans with Offset Accounts

Rates last updated July 25th, 2017
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Loan purpose
Offset account
Loan type
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Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier, P&I)
Apply for a new owner occupier loan or refinance from another lender and receive this discounted rate.
3.84% 4.22% $0 $395 p.a. 95% Go to site More info
3.69% 3.72% $0 $0 p.a. 80% Go to site More info
loans.com.au Offset Variable - Up to 80% LVR (Owner Occupier P&I)
Take advantage of a 100% offset account along with no annual or application fees.
3.72% 3.74% $0 $0 p.a. 80% Go to site More info
Reduce Home Loans Rate Buster 100% Offset Variable Home Loan - Up to $750k (LVR <=80%)
Borrow up to 80% LVR with no ongoing fees and a 100% offset account.
3.54% 3.54% $440 $0 p.a. 80% More info
ING DIRECT Orange Advantage Loan - $150,000+ (LVR <=80% Owner Occupier, P&I)
A fully featured home loan with an offset account and discounts available. $1000 cashback offer available for loans over $300k. Terms and conditions apply.
3.79% 4.11% $0 $299 p.a. 80% Go to site More info
Beyond Bank Low Rate Special Home Loan - LVR <70%
A special low variable rate for owner occupiers with 100% offset account and no application or ongoing fees.
3.83% 3.83% $0 $0 p.a. 70% Go to site More info
NAB Choice Package Variable Rate - $750k+ P&I (Owner Occupier)
Enjoy discounted rates to a range of NAB products. 350K NAB Rewards Points offer available. Terms and conditions apply.
4.34% 4.74% $0 $395 p.a. 95% Go to site More info
IMB Essential Home Loan - LVR <=90% (Owner Occupier)
Get access to a redraw facility and offset account without the annual fee.
4.19% 4.19% $0 $0 p.a. 90% Go to site More info
Greater Bank Ultimate Home Loan - Discounted 2 Year Fixed LVR ≤85% ($150K+ Owner Occupier)
Discount off an already competitive 2 year fixed rate for loans over $150k. NSW,QLD and ACT residents only.
3.79% 4.46% $0 $375 p.a. 85% Go to site More info
loans.com.au Offset Variable - 80% to 90% LVR (Owner Occupier P&I)
A home loan with no ongoing fees. This loan is available for refinances and purchases.
4.04% 4.06% $0 $0 p.a. 90% Go to site More info

What is an offset account?

What is an offset account

An offset account is a savings account that is linked to a loan. Any funds that are deposited into the savings account are "offset" against the loan. The lender then reduces the amount on which interest is calculated by the amount in your offset account. In other words, if you owe $300,000 on your home loan and you have $10,000 in your offset account your lender will only be charging you daily interest on $290,000.

What are the features of an offset account?

The offset account will allow you to reduce the amount of interest you pay. You do this by depositing money into the offset account. These accounts will usually have unlimited free withdrawals and deposits. However, to use the offset account effectively you will need a significant amount in your account.

About offset accounts

What’s the benefit of an offset account?

The more you have in your offset account, the less you owe in interest and that means less for you to pay overall. The trick to getting the biggest benefits from these accounts is to keep as much money in them as possible.

There are a couple of ways to do this;

  • Have your wages paid directly into your offset. By doing this for at least a few days (as long as you don’t withdraw it all at once) your balance will be fairly high. If you have any savings you should also think about moving them into your offset.
  • Consider making all your purchases on a credit card. By paying for all your daily transactions with a credit card, you’re keeping your offset account balance as high as possible for the whole month. However, you must repay your credit card bill at the end of the month to avoid interest. It’s imperative you repay your bill on time, otherwise any savings or benefits you gain from your offset account will be wiped out by credit card interest.

Important information

You could save thousands of dollars in interest over the life of your loan.

Calculate your savings with an offset account

Is a redraw facility or offset account better?

This depends on your personal and financial situation. Both types of home loan offer money saving benefits. Both give you the chance to save interest and repay your loan earlier. The main thing is to decide what you really want from the loan.

An offset account will be most beneficial those with a good enough income to keep the balance fairly high each month. If you’re only ever going to have $100 sitting in it you, won’t make much of a dent in your balance. If, on the other hand, you have a secure income and are comfortable using your credit card for day-to-day transactions, you can reduce your term by a substantial amount.

If you can make overpayments now and then and like the idea of an “emergency fund” running in the background you might be better suited to a redraw account. As long as you can make overpayments at least a few times a year then you will be making the most of this feature.

Think about your budget, your income and your long term financial goals. Both offset and redraw accounts have their benefits, so think about what you want and then compare various home loans until you get the best deal.

Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at finder.com.au. Talk to him to find out more about home loans.

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Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.

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6 Responses

  1. Default Gravatar
    FionaApril 28, 2017

    Hello,

    I recently refinanced with my same lender and currently have a home loan with a debt of $92,000, and redraw funds of $162,000. I have just noticed that the bank is charging me weekly repayments on a loan amount of $254,000 (so the total amount of debt and redraw funds). I was lead to believe that my repayments would be calculated on the debt only, and not the redraw funds. Is this correct, or have I misunderstood? I am extremely concerned if I have got it wrong, as I’ve just committed to a 3 year package, which includes another 2 loans. This particular loan that I am asking about is a variable interest rate, the other 2 are fixed interest rates.

    Many thanks,
    Fiona.

    • Staff
      AnndyMay 1, 2017Staff

      Hi Fiona,

      Thanks for your question.

      After you redraw money from your home loan, the interest part of your repayments will increase because you will be paying interest on your original home loan and your redraw funds. This is true for most home loans with redraw facility.

      It is best if you review the terms and conditions of your home loan to check how much you’ll be charged for accessing your redraw funds.

      Cheers,
      Anndy

  2. Default Gravatar
    JudyApril 20, 2017

    If I have a redraw amount of say $40,000 and a mortgage of $80,000 what exactly does that mean?

    • Staff
      AnndyApril 24, 2017Staff

      Hi Judy,

      Thanks for your question.

      If you have a redraw amount of $40,000, this means that you can access that amount if you need to, although lenders only do this in the case of an emergency.

      Kindly note that a lot of the redraw facilities will come with additional fees for withdrawing and depositing money. The lenders may charge these fees straight away or they may give you a few free redraws and deposits a month. There may also be restrictions on how much and how often you can redraw in any given period. Check the terms and conditions of your home loan contract for specific information about redraw restrictions.

      Cheers,
      Anndy

  3. Default Gravatar
    liaJune 5, 2014

    My question is if one loan is 108,000 and another is 221,843.

    One house is sold for 210.00 which leaves 329843 minus 210000 plus 6270 agent fees a total of 126113. how can hat leave the bank loan of 144000?

    Which is supposed to be from a redraw amount I didn’t even know I had and I am not allowed to take off principal. Don’t understand

    • Staff
      ShirleyJune 6, 2014Staff

      Hi Lisa,

      I’m sorry, I don’t understand what you are trying to say. Could you please give me a bit more context?

      Cheers,
      Shirley

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