home loan features Offset account A simple and effective way to paying off your mortgage sooner is an offset facility can be a simple way of paying off your home loan sooner. If you want to be mortgage free faster, a home loan with an offset facility may be the solution. How it works Instead of having a savings account which usually earns very little interest and is also considered as a taxable income, a smarter way is to link it to your loan account, hence creating an offset account. The balance in the savings account is offset against the balance owing on the mortgage. On top of that, any 'notional interest earned on savings is earned at the same rate as the linked loan. Unlike an all-in-one loan that combines your credit card with your transaction accounts, an offset account works like a regular savings account. After a period of time, the savings in your offset account can help to reduce the loan principal, allowing you to pay off your loan sooner or build up equity. Types of offset accounts There are two types of offset accounts which are namely a 100 per cent offset and a partial offset account. Recently, 100 per cent offset facilities are becoming more highly demanded as people are starting to realize the tremendous benefits of offset accounts. While savings in the offset account are actively working to reduce the loan, repayments are working more effectively to reduce both the principal and interest it attracts. Over a number of years, both the principal and interest on your loan are repaid faster. Redraw facility A redraw facility is a popular feature that allows you to access paid loan repayments. It is probably one of the most widely used loan features on the market. A redraw facility allows you to make additional repayments into your loan account and then access these extra funds when necessary. A redraw facility has two key advantages; it encourages borrowers to make extra repayments, thereby saving on interest costs, and it provide flexible access to funds when they are most needed. Apart from the most basic variable home loans, just about all mortgage products offer this facility. When considering a loan with a redraw facility, check out about the following first. - 1. Is there an redraw fee? Some lenders charge a fee of $10 to $50 each time you decide to access the funds.
- 2. How many free redraws are offered per year? Once you reach your quota, what sort of fee does your lender for each redraw?
- 3. Does your lender offer unlimited redraws, while other lenders allow a set amount?
- 4. What is the maximum redraw amount? Usually it is the total amount of additional repayments made but varies with different lenders and products.
- 5. What is the minimum redraw amount? Many lenders set no minimum, while others have minimums of several thousand dollars. Depending on the fees attached, a redraw facility works best for borrowers who need to redraw against extra repayments infrequently. If you plan to use your home loan as your main transaction account, a redraw facility may not be the most appropriate product.
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