A Revolving Credit Facility offers the flexibility to borrow and repay funds as needed, catering to those with fluctuating expenses or unexpected costs. Conversely, an Offset Facility links your savings to your mortgage, reducing the interest accrued and ultimately saving you money over time.
Both facilities are floating rate products, meaning the interest rate is not fixed and can move with the market. That’s something to consider when deciding how much of your mortgage to place in them. It doesn’t always make sense to put the entire home loan on a floating facility - instead, it’s usually better to size the facility around the level of funds you have access to now (or will reasonably have access to in the near future). That way you’re not paying a higher floating rate on money that could comfortably sit on a lower fixed-rate term.
Working closely with a Mortgage Adviser when it comes to optimising your loan structure, can help you examine your personal cash flow needs and long-term financial objectives, so you can align the right choice with your goals.
The Revolving Credit
Revolving Credit facilities offer flexibility that can adapt to your financial circumstances.
This borrowing option functions much like a large credit card limit, allowing homeowners to draw down, repay, and redraw funds as necessary.
It's particularly beneficial for those with fluctuating cash flows or irregular income, such as freelancers or business owners.
By using a Revolving Credit Facility, you can manage unexpected expenses more effectively without the need to apply for separate loans each time.
However, it's important to exercise discipline, as the convenience of readily available credit can lead to overspending if you don’t keep an eye on things.
Regularly assessing your balance and repayment schedule can help maintain a healthy financial strategy when it comes to Revolving Credit Facilities. They can be an essential tool for managing your home loan with flexibility and ease.
The Offset Facility
Offset Facilities offer a unique benefit by directly linking your savings accounts to your mortgage.
This connection allows the balance in your savings accounts to offset the principal amount of your home loan, thereby reducing the interest you pay.
For instance, if you have a mortgage of $300,000 and savings in your account of $50,000, you will only be charged interest on $250,000. This can lead to significant interest savings over time and potentially shorten your loan term.
You can really put your money to work by not only linking your own accounts, but your children's and even your parents accounts if they are with the same bank - and you ask them nicely of course.😁
Another advantage is that your savings remain accessible, giving you the flexibility to use them while still enjoying the benefits of interest offset.
There are only three banks that currently have an offset product and they all have slightly different features, so make sure to have a chat with a Mortgage Adviser to see if it's suitable for you.
Choosing the Right Option
Picking between Revolving Credit and an Offset Facility requires a clear understanding of your financial goals.
Each option serves different needs and can significantly influence your financial strategy.
If your goal is to maintain financial flexibility and manage variable expenses, then a Revolving Credit might be the better choice. It allows you to access funds as needed, which can be great for managing unpredictable costs.
On the other hand, if reducing mortgage interest and accelerating paying off your mortgage are priorities, then an Offset Facility could be more suitable. This option aligns well with the goal of leveraging savings to minimise interest costs.
Because both are floating facilities, it’s often best to structure them alongside fixed-rate loans - striking the right balance so you’re not paying more than you need to. Think of them as tools that work best when sized appropriately to your accessible funds rather than your entire mortgage.
Working closely with a Mortgage Adviser will allow you to thoroughly evaluate your cash flow, savings potential, and long-term objectives when choosing a borrowing option.
By doing so, you ensure that your mortgage strategy not only meets your immediate needs, but also supports your broader financial goals, paving a path to a more secure financial future. Reach out if you need a hand!