What Is an Offset Account and How Can It Help Your Home Loan?
What Is an Offset Account?
An offset account is a transaction account linked to an eligible home loan. The balance in the account is used to reduce the amount of the loan balance that interest is calculated on.
For example, if you have a $500,000 home loan and $30,000 in an offset account, interest may be calculated as though you owe $470,000.
How Can It Reduce Interest?
The main benefit of an offset account is that your savings can work towards reducing the interest charged on your mortgage.
The more money you keep in the offset account, the greater the potential interest savings may be.
- Salary can be deposited into the account
- Everyday expenses can be paid from the account
- Savings can remain accessible
- Interest may be calculated on a lower effective loan balance
Unlike making an additional loan repayment, money in an offset account generally remains accessible for everyday use.
Is an Offset Account Right for Everyone?
An offset account can be useful for borrowers who regularly maintain savings or have income deposited into their account.
However, some home loans with offset facilities may have higher interest rates or additional fees.
The value of an offset account depends on how much money you keep in it and the costs associated with the loan.
Before Choosing an Offset Loan
Consider:
- The interest rate
- Annual or ongoing account fees
- Whether the offset is 100% or partial
- How much money you expect to keep in the account
- Whether another loan product could provide better overall value
Comparing the total cost and features of the loan is important before making a decision.
This article provides general information only and does not take into account your individual financial circumstances. Consider seeking professional financial advice before making a lending or property decision.
