What is a mortgage offset account?
When you’re in the market for a home loan, the amount of jargon you encounter can be overwhelming. However, one home loan feature you’ll want to understand is a mortgage offset account.
An offset account is a bank account that offsets the money in that account against your loan balance – essentially acting as if the money in that account has been paid off on your home loan before interest is calculated. For example, if you have a home loan balance of $250,000 and have $20,000 in your 100% offset account, you’ll only pay interest on a home loan balance of $230,000. Not a bad feature to have, right?
It’s also interesting to note that if you instead put the $20,000 in a savings account, you could potentially be paying tax on the interest you earned from that savings account.
TYPES OF OFFSET ACCOUNTS
Make sure you check the specifics when it comes to your offset account as they can vary.
For example, a 100% offset account or full offset means that 100% of the funds in your offset account will be deducted from what you owe on your home loan, before interest is calculated.
On the other hand, a partial offset account is where a portion of your home loan (equal to the balance in your offset account) is charged a reduced interest rate. For example, you might be charged 4% p.a. on your home loan but since you have $20,000 in your partial offset account, that portion of your loan could be charged a reduced interest rate of 3% p.a.
Additionally, it’s worth considering if there are any fees or charges associated with the offset account.
ARE OFFSET ACCOUNTS AVAILABLE ON ALL TYPES OF HOME LOANS?
Unfortunately not. It’s important that you check if an offset account is available with the specific loan and credit provider you’re thinking about. Note that fixed rate loans sometimes have more limited options when it comes to offset accounts.
As always, read the terms and conditions and consider your objectives, financial situation or needs before you make any decisions regarding offset accounts.
WHERE CAN I FIND HOME LOANS THAT OFFER OFFSET ACCOUNTS?
Credit Savvy offers a free home loan comparison service that lets you filter by features such as offset accounts. Why not try it for free?