Redraw facility:

This facility features the borrower to withdraw the deposited excess money beyond their minimum repayment. This feature provides flexibility to the borrower if they are short of cash. Different lenders have different policies on maximum and minimum redraw facility. It is better to keep your savings in redraw facilities as it will reduce your home loan interest payment in a long run rather than earning interest from your saving account. However, a redraw facility is not a type of account that can be used as like everyday transaction account, withdraw money from an ATM, and use it in the form of a debit or credit card.

Offset account

An offset account is a linked transaction account to your home loan account where a borrower can put any savings from their earnings to reduce their interest on home loans. The higher the amount you keep in your offset account the lesser the interest you pay in your home loan over time. Most of the lenders allow this feature on variable rate home loans. Some lenders will charge you an offset account annual fee or a monthly fee so, in this case you need to consider if your offset fee is lesser than the amount of the interest you save from the offset account.

How can you save on interest from an offset account?

If you have a Principal loan amount of $500k, and if you deposit $20k in your offset account, then you will be paying interest on $480k as long as if your deposited amount stays in your offset account over a period of time. The nature of an offset account depends on individual circumstances as everyone’s income, spending, and saving nature is different. Thus, it is better to take a consultation from an expert before setting up this account.

 

Top up facility:

This feature is suitable if you meet the serviceability requirement set by the lender and want to finance purchases than applying for a car loan or credit card, personal loan as home loan interest rate is cheaper than other finance options. You can have the flexibility of keeping only one debt account with one repayment. The interest rate in this feature is charged on the funds you choose to use, not on the whole loan amount. There are some limitations and criteria for this feature set by different lenders. It will increase your mortgage loan term; you need to meet the larger monthly repayment and most of the lenders will not offer this feature if you are locked in a fixed rate loan.