Buying a home
Offset vs redraw: What’s the difference?
25 February 2021
An offset account and a redraw facility are both fantastic ways to potentially shave time and money off your home loan.
An offset account is a type of savings or transaction account linked to your mortgage. The balance of your offset account can be used to reduce the interest payable on your home loan. As a trade off, you won’t be paid interest on the balance of that offset account.
A redraw facility gives you access to a portion of the extra repayments you’ve made on your home loan, encouraging you to make extra repayments which will also reduce the amount of interest you pay on your home loan.
While they are similar, they operate in different ways and have different benefits. So, how do you know if either is right for you?
How does an offset account work?
When you have an offset account linked to your home loan, the balance of that account is deducted from the the daily principal balance of your home loan. That is, your offset account balance is subtracted from the amount on which you have to pay interest on your home loan.
Say Billy has $20,000 in his Suncorp Everyday Options Account which is linked as an offset account to his Suncorp Standard Variable Home Loan, on which he owes $400,000 at a particular point in time. When we calculate the daily interest on his loan, we’d subtract that $20,000 from the $400,000. So, he’ll only pay interest on $380,000, while that $20,000 remains in his offset account and his loan balance is $400,000.
However, Billy won’t be paid interest on the $20,000 in his Everyday Options Account because he has received the offset benefit instead. Billy may also have to pay a Mortgage Offset Fee. You can learn more about applicable fees in our Lending Fees and Charges brochure (PDF).
An offset account is a savings or transaction account which means the money in that account should be easily accessible via online banking, with a card at point of sale or ATMs and via other money access methods and features generally associated with these types of accounts.
How does a redraw facility work?
A redraw facility – or Home Loan Cashback* as we call it at Suncorp Bank – allows you to request access to any extra repayments you’ve made into your home loan above and beyond the minimum required repayments. Like an offset account, a redraw facility can encourage you to make extra repayments into your mortgage by reducing the principal balance on which interest is calculated, which in turn reduces the interest payable on your loan.
There’s usually lots of flexibility when it comes to making extra repayments; you can make them fortnightly or monthly, or just pay them as one big lump sum when you come into some extra cash, like an inheritance or tax refund. If you do decide to draw down from extra repayments, you’ll have to pay this back over the course of your loan.
Here's an example of how this could work. After 12 months, Sarah has repaid $30,000 of a $320,000 home loan in monthly payments of $2,500 ($2,130 minimum monthly payment, plus $370/month extra). Sarah would now have access to $2,310 through Home Loan Cashback ($370 extra payments x 12 months, minus a one month loan repayment buffer of $2,130.#)
There can sometimes be restrictions on your ability to access funds in a redraw facility so you should always read the terms and conditions of the redraw facility to understand them.* For example, if you’re using Home Loan Cashback via Internet Banking, you won’t be able to make future-dated and recurring payments or one-off external transfers to accounts at other banks.
Knowing which one is right for you
Everyone has different financial situations that can change at any time. Whether an offset account or redraw facility will work for you will depend on your personal circumstances, including your income, tax affairs and how you readily or easily you want to access that money. The type of home loan product you select will also be important as there may be fees or a different interest rate on home loan products that allow you to have an offset account or redraw facility.
Our Home Loans Extra Repayments Calculator can help you gauge what can work best with your loan and budget. Just enter your home loan details and either the projected offset account balance or extra repayment amount.
Better yet, book an appointment with a Suncorp Bank home lending specialist to help determine what’s right for you. All consultations are 100% obligation-free.
- Home loan cashback: What is a redraw facility?
- What happens if I make extra home loan repayments?
- Home loan features: How your home loan could work for you
*Terms and conditions for Home Loan Cashback are contained in the Registration form you need to complete to access Home Loan Cashback, your Home Loan Credit Credit Contract and, if applicable, Internet Banking Terms and Conditions and Suncorp App Terms and Conditions. Please read these conditions carefully. Available Cashback may exclude any recent cheque, direct debit or pay at post payments and external transfers cannot be performed using online Cashback. Fixed Rate Home Loans are excluded from Cashback.
#Scenario based on a 30-year loan term, a variable interest rate of 7% p.a. and a monthly repayment frequency with principal and interest repayments.
Eligibility criteria will apply to all home loan features mentioned in this article. Not all of the features suggested in this article will be available to all customers. Information is intended to be of a general nature only and any advice has been prepared without taking into account any person's particular objectives, financial situation or needs.
Home Loans are provided by Suncorp-Metway Ltd ABN 66 010 831 722 AFSL No. 229882 Australian Credit Licence 229882 (“Suncorp Bank”) to approved applicants only. Fees, charges, terms and conditions apply and are available on request. Insurance is issued by AAI Limited ABN 48 005 297 807 trading as Suncorp Insurance. Information provided is general advice only and has been prepared without taking into account any person's particular objectives, financial situation or needs. You should make your own enquiries, consider whether advice is appropriate for you and read the relevant Product Disclosure Statement or Product Information Document before making any decisions about whether to acquire a product.