People who want to save money will love offset accounts. Over the life of a home loan, this simple loan feature can save you a lot of money by lowering your interest payments and even your taxes.
What is an offset account?
The idea behind an offset account is both clever and easy to understand. You can think of an offset account as a regular savings account, but it is linked to a home loan (usually a variable-rate loan). When you put money into an offset account it “offsets” your loan debt – the amount counts towards the amount you’ve paid on your loan.
For example, if your home loan is $500,000 and you have $50,000 saved in an offset account, your interest payments will be based on a $450,000 loan. With a 5% interest rate, for example, you’d save $268 a month on payments while still making the same amount of progress on the debt.
If you get a 25- or 30-year home loan, the money you save each month adds up to a lot, and can literally take years off the length of your loan. All the while, you still have access to your savings.
To offset or save?
An offset account is different from a regular savings account because it does not pay interest. You’ll almost always be better off with an offset account, though, since you probably pay a lot more in interest to the bank than they pay you on a savings account.
Putting all of your savings into your offset account is the best way to get the most out of it. The bigger the balance, the less interest you pay on your home loan. Like a regular savings account, you should put any money you earn into it. If your savings balance increases, your loan debt will go down, but you can always access that extra money whenever you need to.
If you like to save money and hate paying credit card interest, you can also try to get something out of having two cards linked together. Smart savers put everyday costs on their credit cards to get the most out of their offset balance. For this to work, though, you must always pay off the card right away and never pay credit card interest. This keeps your offset account balance as high as it can be and eliminates any credit card debt that needs to be paid. Your card’s frequent flyer points or other benefits may even be adding up in the background.
Find the best home loan
If you have a good history of saving, you should look into the benefits of getting a home loan with an offset account. Talk to an expert at Mortgage Broker Sydney about a loan that lets you offset your debt. Pay less interest each month, and enjoy the long-term financial benefits.
At Mortgage Broker Sydney, our brokers can assess your assets and savings history and find the best loan for your situation.
You don’t have to pay for our service. We support you through the entire loan application process and even conduct regular reviews through the life of your loan, making sure you always get the best deal. Your lender will still apply fees and charges after we find you a loan, though.
So if you want to explore the option of an offset facility on your new or existing home loan, speak to one of our brokers.
Michael began his career in the finance industry over 35 years ago. He progressed through the ranks at the CBA in both retail and corporate lending, culminating in a senior position as a Corporate Relationship Executive. His decision to leave the bank in 2003 to become an independent mortgage broker was driven by his desire to assist everyday customers break through the jargon of the banking world and access the best loan products in the market. His experience is wide-ranging from helping first time buyers to large commercial enterprises. What Michael doesn’t know about home loans, simply isn’t worth knowing!