A redraw facility and offset accounts are useful tools and could help you pay off your mortgage sooner if used wisely. A redraw facility allows you to take back any money that you have 'overpaid' into your home loan (e.g. if your minimum home loan repayments for the year are $15,000 and you manage to pay in $20,000 then you would have $5,000 available in redraw.)
Don't forget that the reduced interest charges you were enjoying by overpaying will disappear when you redraw the money because your effective loan balance will go up. It can also take time to access your funds via a redraw facility and you may also be charged a fee each time you use the redraw facility. Limits are often imposed on the amount of each withdrawal as well as the number of redraws available annually. Redraw is, however, commonly a standard feature even on basic loans, so you shouldn't have to pay a higher interest rate to access it.
Offset accounts are more flexible, and many provide ATM access that let you withdraw money at any time without additional charge ? so it's important that you discipline yourself to limit your spending. Remember, the less you have in the offset account, the higher your loan balance and the lower the interest savings. An important consideration is that offset accounts are not a feature of every loan. They tend to be available with standard variable mortgages rather than basic loans, so you could pay a higher rate to have an offset account. The idea of using an offset account is to use personal savings to save on mortgage interest charges. If you don't have a reasonable level of savings, you may not enjoy significant interest savings, and end up paying more on a higher rate loan.
As a general rule, an offset could work well if you have substantial savings and a large mortgage. If you don't have much in the way of savings and you are only likely to redraw extra loan payments in an emergency, a redraw facility can offer greater long term interest savings. Of course, plenty of mortgages offer both facilities so it is possible to get the best of both worlds. Keep your everyday spending money in an offset account, and tuck money you're unlikely to need in the immediate future into your mortgage ? it will always be there if you need it as long as your loan offers a redraw option.
An expert Aussie Broker can help you compare a range of home loans and help calculate how much these options could save or cost you over the long term. This service is part of your free appointment with an expert Aussie broker.