How Does An Offset Account Work
Offset accounts can be a useful tool when it comes to paying off your home loan. However, there are things you should know before you go select this type of mortgage.
What is it?
An offset account is a transaction and/or savings account that is linked to your home loan. It effectively offsets against the interest on your home loan, potentially reducing the term of your mortgage.
How it Works
Because an offset account can help you reduce the amount of interest you pay over the term of the loan, every dollar you have in your offset account can potentially save you in the long run. Assuming you have a 100% offset facility, it could look like this: if you have a $200,000 mortgage balance and $10,000 in your offset account, it could see your interest calculated on $190,000 instead of $200,000. This means more of your repayment will go towards the principal.
The offset account is generally fully transactional, so you can have your income deposited into it as well as withdraw available cash from the account. You will have the usual access to the account such as an Eftpos card, internet and phone banking, just like you would with a regular savings account.
Offset accounts are available on both owner occupied and investment lending.
Offsetting Variable and Fixed Rate Loans
Most 100% offset products are attached to variable rate home loans. Generally speaking they are usually 100% however there are some instances where it may be a partial offset so it is important to be informed.
Something to note is that fewer fixed rate loans offer 100% offset facilities. If your preference is for a fixed rate home loan your mortgage broker will be able to guide you through the available fixed products that offer an offset facility.
Fees, Charges and Conditions
There can be fees associated with offset home loans. Many of the offset products come within a package that can sometimes include the mortgage, the offset account and sometimes a credit card, and may have an annual or monthly fee. There are options that do not have fees as such but may come with other conditions or costs. It is important that you discuss all of these options with your mortgage broker to make sure you are selecting a product that is right for you. If there are conditions associated with an offset account and/or home loan it is vital to make sure you are aware from the beginning.
Contact us to find out more about mortgage offset accounts and how they may be able to help you.