As Perth mortgage brokers, one of the most common questions we receive from home buyers is “What is an offset account, and how does it benefit me?” Simply put, an offset account is a savings account that is linked to your home loan. The balance in this account is then offset against your mortgage, reducing the amount of interest you pay on your home loan.
So, how does it work? Let’s say you have a home loan of $500,000, and you also have $50,000 in savings. If you were to hold that $50,000 into your offset account, interest on your home loan balance would then be calculated on the remaining $450,000, rather than the full $500,000. This means that you would pay less interest on your home loan each month, and you would also be able to pay off your loan faster.
Typically, offset accounts are available in conjunction with a variable-rate home loan. This is in large part due to the restrictions around fixed rate home loans and the ability to pay down the loan quicker.
For those who want the surety of a fixed rate combined with the benefits of an offset account, it may be worthwhile looking at a split loan. A split loan is when you divide your home loan into two different parts, one of which is fixed and the other is variable. By using an offset account with your variable portion of the loan, you can reduce the amount of interest you pay on that part of the loan, while still benefiting from the stability of the remainder of your mortgage being comprised of a fixed rate.
In summary, an offset account is a savings account that is linked to your home loan and offsets the amount of interest you pay. If you are looking to save money on your home loan and pay it off faster, an offset account may be the perfect solution for you.
The downside of these loans is that they can be quite confusing to get your head around. Thankfully the team at Neptune Finance Australia are specialists in offset home loans and are always just a phone call or an email away to talk over your loan options and the ins and outs of all things related to offset accounts!
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As Always - the information in this blog post is general only and shouldn't be constituted as advice. Your complete financial situation will need to be assessed before acceptance of any proposal or product.
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