Different lenders offer different loan features so you’ll need to decide what suits you best. Common features such as a line of credit, redraw facility and mortgage offset account can help reduce the amount of interest you pay and the time it takes to pay off your home loan. These features can also offer flexibility if your circumstances change.
What is a line of credit home loan?
A line of credit helps simplify your banking by consolidating all your debt into one easy-to-manage loan account.
This type of home loan provides money up to an approved credit limit. That means you can access the approved amount in full or in part and use the funds for any purpose. Say you use some money for home improvements or to buy a new car; you may have money left over that you can use down the track.
For example, if you have an approved credit limit of $200,000 and you use $50,000 for home improvements, you’ll only pay interest on $50,000 even though there is an extra $150,000 available for you to use. And once you pay back the $50,000, you’d have $200,000 available when you need it.
Taking out a line of credit is a handy way to have borrowed money on hand without needing to apply for individual loans. Be aware that the interest rate for a line of credit is often higher than a variable rate loan. You’ll also need discipline to repay it―otherwise you can end up perpetually in debt.
How can a redraw facility help with my home loan?
If you make extra repayments on your home loan, a redraw facility lets you take the extra money out again if you need it. So rather than saving your money in a separate account you can reduce the amount of interest charged on your loan―by paying more than you need to—and access the extra money if you need it.
Will a mortgage offset help me pay less interest?
A mortgage offset account is a day-to-day savings account typically linked to a variable rate home loan. Instead of earning interest, the balance of your home loan is reduced by the amount you have in your offset account for the purpose of calculating interest charges.
In an offset account your savings are still accessible as they are in a regular savings account. But remember that when you make a withdrawal, you’ll have less money working to lower the interest charges on your home loan.
For example, say you have a home loan balance of $200,000 and savings of $20,000. If you keep the $20,000 in an offset account, the interest on your home loan will be calculated on a virtual balance of $180,000, not $200,000. That means you’ll pay less interest than if the actual loan balance had been used to calculate the interest due.
Use our loan offset calculator to see how much you could save using a mortgage offset account.
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It’s important to consider your particular circumstances and read the relevant Product Disclosure Statement or Terms and Conditions before deciding what’s right for you. This information hasn’t taken your circumstances into account.
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