Extra repayments can reduce interest, but they also move cash into the loan. Before recommending them, compare redraw access and offset features with the client’s need for accessible funds.
A broker should confirm that the feature applies to the chosen rate and loan split. Fees and contract limits may change the result.
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How The Feature Works
The related explanation of unlimited additional repayments covers the broad product feature. In practice, each extra payment reduces principal sooner, so less interest may accrue afterwards.
When It May Suit
The feature may suit a borrower with surplus cash, whether regular or irregular. It may also suit someone who wants a simple way to reduce debt and does not need immediate access to every extra dollar paid into the loan.
An offset account can be a better fit when access to cash matters. The broker should compare both structures using the client’s actual balance and expected cash flow.
Limits To Check
- Fixed-rate portions may cap extra repayments or charge break costs.
- Redraw may have conditions, delays or minimum amounts.
- Product fees can outweigh a feature that the client rarely uses.
- Money paid into the loan may be less accessible than emergency savings.
Clients with an additional mortgage or other high-cost debt need a wider comparison before directing surplus cash to one balance.
Put The Strategy Into Practice
Model the scheduled repayment and the client’s proposed extra amount. Compare the result with keeping funds in offset and with refinancing. Then confirm the current loan terms before the client acts.
