Mortgage offset accounts and all in one home loans



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April 27, 2011

100 percent offset accounts are often confused with all in one home loans. Here’s how to spot the difference.

Largely an Australian innovation, a 100% offset mortgage is a deposit account linked directly your home loan. It works by allowing you to reduce the amount of interest you pay and therefore fast track your way to paying off your mortgage. For example, if your mortgage is $250,000, but you are able to deposit $5000 into the offset account, the interest is calculated on $245,000.

The more savings you are able to leave in the account, the less the interest calculated on your loan. An added benefit is that you don’t have to pay tax on the savings in your offset account.

Things to watch out for:
It’s a good idea to use an offset mortgage calculator to work out if you can benefit from this type of loan. They’re usually not appropriate for investment property buyers. Some offset accounts only allow you to offset 50% of the money in your account.

All-In-One Home Loans
Often referred to as a home equity loan, this type of mortgage is also designed to help you save money on interest. These loans combine your mortgage account and your everyday banking account into one. They are usually linked to ATM, credit card and direct debit features. You simply deposit all income into the all-in-one account and withdraw it as need be. At the end of the month, any extra funds left over are deducted from the balance owing on your mortgage, reducing the amount of interest.

Related mortgage links

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