Whether you should use mortgage redraw or a 100% mortgage offset

Earlier this month we posted on our socials, a video from Channel 7’s Sunrise program about the popular 100% mortgage offset, highlighting that it may not be the best option for everyone.

So we thought it worth clarifying the features of 100% mortgage offset against a mortgage redraw so you can make a well informed choice that is best for you.

Whether you should use mortgage redraw or a 100% mortgage offset account depends on your financial goals and circumstances. Both options can help you save on mortgage interest, but they work in slightly different ways.

Here’s a comparison to help you decide:

Mortgage Redraw

- With a mortgage redraw, you make extra payments on your mortgage principal.
- These extra payments reduce your outstanding loan balance.
- If you need access to those extra funds in the future (e.g., for emergencies or investments), you can request a redraw of those funds from your mortgage account.
- The interest on your mortgage is calculated based on your reduced loan balance, which can save you money over time.
- Redraw facilities may come with limitations or fees, and there could be a waiting period before you can access the funds.

Use mortgage redraw if:

- You want to reduce your loan balance and save on interest over the life of the loan.
- You have extra funds to put towards your mortgage but may need access to them later.

100% Mortgage Offset Account

- A 100% mortgage offset account is a savings or transaction account linked to your mortgage.
- The balance in this account is offset against your mortgage balance when calculating interest. For example, if you have a $200,000 mortgage and $20,000 in your offset account, you’ll only pay interest on $180,000.
- You can access the funds in the offset account at any time without restrictions.
- The interest savings can be equivalent to or even greater than making extra payments, as the offset affects the interest calculation on a daily basis.

Use a 100% mortgage offset account if:

- You want liquidity and easy access to your savings while still saving on mortgage interest.
- You have substantial savings that you’d like to keep separate from your mortgage but want to use them to reduce your interest costs.

Ultimately, the choice between mortgage redraw and a 100% mortgage offset account depends on your financial priorities. If you prioritise liquidity and easy access to your savings, an offset account might be better.

If you want to steadily reduce your loan balance and don’t need immediate access to the funds, mortgage redraw could be more suitable.

It’s also a good idea to consult with a financial advisor or mortgage specialist to determine which option aligns best with your specific financial situation and goals.