Offset vs. Redraw: Structuring Your Home Loan

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.