How Offset Accounts Work For Your Home Loan
Your Guide To Using An Offset Account For Your Mortgage
When applying for a mortgage, we are often introduced to a lot of options that are currently available on the market. On top of that, we are also told about offset accounts and why they are such a major feature of the home loan that we are about to take.
Therefore, it goes without saying why you should know how to use an offset account to save money and, ultimately, get ahead on your loan repayments.
What Is an Offset Account?
An offset account is basically a transaction or savings account that is linked to your home loan account. A proportion of that account’s balance is offset, on a daily basis, against the balance of your home loan account.
The result is that you are charged interest only on the difference between the total balance of your loan account and the amount that’s offset.
Basically, the lender will charge you less in interest as they are not charging you on the full remaining balance of your home loan.
How Does an Offset Account Work?
As mentioned above, having an offset account means that the money in it is deducted from your home loan account balance daily. With a $200,000 loan and with $15,000 in your offset account, you will be charged interest only against $185,000, for example.
Naturally, this reduces the amount of interest that you have to pay significantly. In the end, your monthly mortgage payments will reduce the loan amount faster.
Probably the best part is that you don’t need to have a lump sum to deposit into your account for it to work as intended. You can simply deposit your salary into this offset account every single month and use it as a regular account.
You can make payments with it, as well as withdrawals – in the end, you can even save thousands of dollars over the term of your loan.
What Should You Look For?
When browsing for an offset account or being introduced with several options by different lenders, here is what you should look for so that you get the best out of it:
No Balance Limit – if an offset account has no balance limit, then you can use it as a regular savings account as well. Moreover, with no limit, you can also deposit more and take advantage of greater benefits when it comes to savings on your home loan.
100% Offset Balance – you will want an account where 100% of your balance is set as an offset against your loan and calculated on a daily basis. This gives you the opportunity to afford the maximum financial benefit when it comes to savings against your loan.
Interest Rate Equal to Mortgage – even though this is a common feature, you should make sure that the interest rate will move with your home loan and ensure maximum savings.
Low-Interest Rate Credit Card – a low-interest rate credit card can be very helpful when you still have to do renovations in your home or simply have to set it up after you bought it.
The Bottom Line
The benefit of an offset account is very clear – you are charged less interest if you have one. This is why you should look for those lenders that can provide one for you – naturally, make sure that the one they can give had the advantages we’ve just mentioned.
If you have any more questions about offset accounts, make sure to get in touch with us – our team will provide you with all the information you need.
Moreover, if you need help finding the best loan for your needs or someone to guide you through this process, then you can count on us as well. Reach out and contact us today – we’ll do our best to help you! Contact us on on 02 9121 6247 or submit your scenario online.
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Whether you’re a first home buyer looking at entering the market or an existing home owner looking at ways to save money on your home loan, we have you covered. We’ve put hundreds of hours of research into these guides to ensure you end up ahead, and it’s completely on the house.
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We meet for a consultation, obtain your supporting documents and proceed to structure and package your application for approval knowing exactly what the banks want to see. We also monitor your home loan post approval ensuring you’re home loan suits you and your financial position
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