Home loan offset account


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Dec 15, 2010( 2 min read )

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When used the right way, a mortgage offset account can cut years off your home loan and save you thousands of dollars.

A home loan offset account is a feature available on a range of home loans. The best way to describe it is a transaction account linked to your home loan. The money in your transaction account is offset against the balance of your loan, so you only have to pay interest on the difference.

For instance, if you took out a home loan valued at $300,000 and your offset account had $15,000 in it, you will only need to pay interest on the balance of $285,000. Over 25 years you will save over $32,000 (using a rate of 7.09 percent).

In order to get the most out of a home loan offset account, there must be money in the linked account. The best way is to ensure all of your income is deposited into this account and increase the balance throughout the term of the loan. Just remember the more savings you have, the less you pay in interest.

Your savings aren’t locked up either and you can still access the money in the offset account when you need it. Just be sure to top up the account when you can so that the balance doesn’t fall, to help you reduce the amount you pay in interest.

But while a home loan offset account can help you save in interest on your home loan, it can end up costing you more if you it isn’t used properly. If you don’t have a sizeable amount of cash to offset your loan, you could pay a higher interest rate and more in fees than what you could without the offset feature attached.

Some lenders may also require a minimum or maximum balance to set up the account. Be sure to check with the financial institution before applying.

If you have some savings sitting around, one option is to take out a home loan with an offset facility. Compare home loans online to find a home loan that offers this feature and that offers a low interest rate.

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