A common question for health professionals discussing residential home loan options is: "Should I choose an offset account or a redraw facility for my loan?" This decision is crucial, as structuring your loan effectively is essential not only for managing repayments while living in your home but also for setting up a foundation for future financial prosperity. By understanding the unique features and benefits of each option, you can tailor your home loan to fit your financial goals and lifestyle needs.

What's the difference between offset and redraw?

Let’s break down what these options involve. An offset account is a savings or transaction account linked to your home loan, opened with your lender. The funds deposited in the offset account are subtracted daily from your loan balance, effectively reducing the interest you pay. Simply put, the more you have in your offset account, the less interest accrues on your loan. This allows more of your monthly payments to go toward reducing the principal rather than paying interest. Offset accounts are available for both owner-occupied and investment home loans, usually on variable rate loans. They offer the advantage of giving you immediate access to your funds, which can be particularly beneficial in emergencies or for making large purchases without disrupting your savings strategy.

On the other hand, a redraw facility allows you to withdraw any extra payments you've made on your home loan above the required minimum repayments. This option essentially gives you the flexibility to access those additional funds if needed, providing a safety net for unexpected expenses or investment opportunities. However, redraw facilities often come with certain restrictions, such as a minimum withdrawal amount or potential fees for accessing the funds. Therefore, understanding the terms and conditions associated with a redraw facility is important to ensure it aligns with your financial strategy.

Ultimately, whether an offset account or a redraw facility is more suitable depends on your personal financial situation, goals, and how you plan to manage your home loan over time. Consulting with a financial advisor or mortgage broker specialising in health professionals can provide valuable insights to make an informed decision that supports your long-term financial success.

Buying your first home is not a one-size-fits-all experience. From the property you’re searching for, to the way you go about buying it, to the loan features that matter most to you, no one’s first entry to the property market will be quite the same. 

Most people have a vision of buying at auction and seeing the hammer fall on their successful bid, but there is more than one way to secure your dream home, and each one has different benefits - and conditions - to consider. 

Buying at auction 

Chances are you’re familiar with the auction process. A house will be advertised for a set period of time (often a few weeks) in the lead up to an auction date, at which interested buyers attempt to outbid one another to secure the property.  

Auctioneers make a number of announcements at the start of an auction that outline the rules and regulations attached to the process. These may include prohibiting late bids, false bids or attempts to prevent someone from bidding. 

A number of other conditions apply to auction sales. If you’re the successful bidder, you’ll immediately be required to pay a deposit (usually 10%), and the sale is final, with no cooling off period. There is no opportunity for negotiation and settlement periods are often set by the vendor. 

Private sale 

With a private sale (sometimes known as private treaty or sale by negotiation), the vendor advertises the property for sale, along with an asking price (or price range).  

Prospective buyers will inspect the property and then submit offers, generally through the real estate agent who will act as the vendor’s advocate in the sale. Offers can be accepted or rejected, or the agent may enter a negotiation with the prospective buyer to meet a more favourable agreement. 

Naturally, a private sale does away with the often stressful experience of bidding at auction, where some buyers find themselves swept up and enticed to spend more than they planned, or otherwise are left disappointed when a property sells for much more than expected. 

For many, this is a significant advantage as it allows buyers to have much greater control over the price they pay, away from the auction adrenaline high. As well as this, private sales contain a ‘cooling off’ period - for example in Victoria, if you purchase a residential and small rural property there is a three-day window during which you may reconsider and cancel the sale (subject to certain conditions).  

Because a private sale is negotiated, there is also the opportunity to add conditions. For example, you may negotiate to make the sale subject to a building and pest inspection, or subject to your ability to secure a loan (referred to as a finance clause)  

Private sales can be a longer process and a more challenging way to find property, but for the patient buyer they can also provide greater flexibility and the chance to ensure added protections. 

Expression of interest 

Sale by expression of interest (EOI) is similar in many ways to a private sale, in that the property is placed on the market (generally for four to six weeks) and prospective buyers are invited to make an offer before the closing date. EOIs are often favoured when a property needs to be sold within a short time frame. 

Where an EOI differs is buyers must provide a ‘best and final’ offer in writing, along with any conditions, and vendors wait until the closing date before considering all EOIs and proceeding with their preferred option. This means there is less flexibility in negotiating with multiple interested parties and over a period of time, and buyers must be prepared with any conditions when they submit their EOI, such as settlement details or making the offer subject to finance. 

When searching for your dream home, keep in mind that the way you buy it can impact the flexibility you have to set your own price, terms and conditions. While some options put more power in the hands of the buyer, knowing what to expect will put you in a better position to succeed, regardless of the method of sale. 

Remember that finance clauses and other procedures differ between states, so be sure to do your research into how these conditions apply to your situation before committing to any purchase. 

Need some personalised advice on approaching your first property purchase? Contact the expert team at BFD Finance today to learn more about how we can support you to secure your dream home and protect your future financial success. 

After diligently saving up and searching, you're finally on the verge of purchasing your dream home. Choosing the right home loan is a significant decision and can often feel overwhelming. As a health professional, gaining an understanding of the fundamentals of home loans will facilitate a smoother journey through this process.

Key Points for Choosing a Loan:

Variable Rate, Fixed Rate, or Both?

• A fixed-rate loan ensures that your interest rate remains unchanged for a predetermined period, typically ranging from 1 to 10 years, which provides consistent and stable payments. This can be particularly beneficial if you prefer predictability in your financial planning.
• A variable rate loan, on the other hand, can fluctuate at any time, which directly impacts your repayments. This type of loan may offer more flexibility but requires a certain level of risk tolerance.
• You have the option to select a combination of both, by fixing part of your loan for stability and retaining part as variable. This approach can potentially offer benefits if interest rates are favourable.

When deciding, consider your comfort with risk and stay informed about current market trends to make an educated choice that aligns with your financial goals.

Offset Accounts:

• An offset account is a transaction account linked to your loan that can help reduce the amount of interest you pay by offsetting your loan balance, thereby allowing you to pay off your loan faster.
• These accounts are frequently coupled with variable rate loans and can offer significant savings over time, although they may involve certain fees or higher interest rates.
• Understanding the ins and outs of offset accounts can be a valuable strategy in managing your home loan more effectively.

Pre-Approval:

• While not mandatory, obtaining pre-approval gives you greater certainty regarding your budget and readiness to purchase. It serves as an indication of how much you might be able to borrow, streamlining the buying process and enhancing your negotiating position.
• For pre-approval, you'll need to provide bank statements, proof of income, and details of assets, which can help you get a clear picture of your financial standing.

Consult a Mortgage Broker:

Finding a loan that aligns with your financial situation and lifestyle is crucial. A mortgage broker can offer professional guidance to help identify lenders that suit your needs and assist in gathering the necessary documentation. They can also provide insights into the various loan options and features available in the market.

Reach out to BFD Finance to explore your options and embark on your home-buying journey with confidence, knowing you have expert advice at your fingertips. With the right support, you can secure a home loan that meets your requirements and helps you achieve your dream of homeownership in Australia.