Home loans with free offset accounts
When taking out a home loan it pays to look at the wide range of options that lenders now provide. It doesn't have to be terribly complicated, however, you should do your homework before making a decision on what is the best type of home loan for your circumstances.
What are home loans with free offset accounts?
Home loans with free offset accounts work as a regular transaction account that is linked to your home loan. You can save money as you reduce the amount of interest that's charged on the balance of your loan. It's a free feature and means that with each monthly repayment made there will be more money applied to the principal balance. Any funds you hold in the account, provided it's a 100 per cent offset account, will offset the amount of interest you are charged on the home loan. There are free offset accounts and those that charge monthly fees, so be sure of what you are signing up to if you are looking for the free option.
How do home loans with free offset accounts compare to other products?
All home loan products have different features so you need to work out what is the most appropriate route to take. Although some are advertised as being free, check that you won't be charged any additional fees for the service, for example application fees, higher annual fees or higher interest rates. Look at comparison rates too, as well as the interest rate advertised, and be aware that some lenders may offer offset accounts at relatively low percentages. This could impact on the amount of money you will save over the years in terms of interest payments on the loan.
What are the main features of home loans with free offset accounts?
This type of home loan can be of benefit if you have some savings and want to use them to reduce the amount of interest you pay on your home loan. When you take out a home loan under with this feature you have the potential to save a considerable amount of interest, provided you have a reasonable sum of money to offset. As an example, if you take out a home loan of $250,000 and have $20,000 in your offset account, interest will only be charged on $230,000. Daily interest is thus calculated on a lower amount and you may therefore be able to pay off the loan more quickly than expected.
Are there risks to consider?
Before you take out any home loan product always check the small print to make sure you are getting exactly what you expect. Ensure that 100 per cent of the offset account balance is deducted from your home loan balance before interest is calculated for the day. Make sure also that you can deposit and withdraw funds from the account when you want to, either online, through a teller or at an ATM. There may be times when you need some ready cash from your savings and you need to weigh up the impact that could have in terms of the interest you will then be charged if your offset account balance reduces.