Key Terms in Mortgage Process

Offset Account

What it is: A transaction account linked to your home loan. The balance offsets your loan balance when interest is calculated.

Pros

• Reduces interest payable without locking money away

• Funds remain accessible at any time

• Can help pay off the loan faster

• No tax payable on interest saved (for owner‑occupied homes)

Cons

• Often comes with higher interest rates or package fees

• Mainly available on variable or split loans

• Requires discipline to maintain a balance

Redraw Facility

What it is: Allows you to withdraw extra repayments you’ve made on your loan.

Pros

• Reduces interest while extra funds stay in the loan

• Usually no extra cost

• Convenient access to overpaid funds

Cons

• Access may be limited or delayed

• Lender can restrict or cancel redraw access

• Redraw amounts can affect tax deductibility for investors

Early Repayment Facility

What it is: Allows you to make extra repayments on top of your minimum loan repayments.

Pros

• Reduces loan balance faster

• Lowers total interest paid over time

• Provides flexibility to pay down debt sooner

Cons

• Fixed loans may restrict or cap extra repayments

• Excess repayments on fixed loans can trigger fees

• May reduce cash flexibility if overused

Fixed Interest Rate

What it is: An interest rate locked in for a fixed period (e.g. 1–5 years).

Pros

• Certainty of repayments

• Protection from interest rate rises

• Easier budgeting

Cons

• Limited flexibility (extra repayments often capped)

• No benefit from rate decreases

• Break costs can be high if loan is changed early

Variable Interest Rate

What it is: An interest rate that can move up or down with market changes.

Pros

• Greater flexibility

• Access to features like redraw and offset accounts

• Ability to benefit from rate cuts

• Easier refinancing or loan changes

Cons

• Repayments can increase if rates rise

• Less certainty for long‑term budgeting

• Requires tolerance for interest rate changes