What is a Mortgage Offset Account?
An offset account is essentially a transaction or savings account that is directly linked to your home loan, it can potentially save you a significant amount of interest while also reducing the time remaining on your mortgage.
Here’s how it works
If your mortgage is $600,000 and it has an offset facility with a balance of $50,000, instead of receiving an insignificant amount of interest on the deposit of $50,000 and paying the full interest on the $600,000 balance of the mortgage, with an offset facility, the interest on the mortgage is only charged on the first $550,000 ($600,000 less $50,000).
This will allow you to save money on interest without paying straight into the loan itself, giving you the flexibility to deposit your salary and withdraw from the account like a normal transaction account without being charged any redraw fees.
In addition to saving on interest and reducing the length of your mortgage, you won’t need pay any additional tax from the $50,000 you would have normally deposited in your transaction account.
Things to consider
A mortgage offset account can be an effective way to pay off your home loan, although it benefits mostly towards homeowners who are good savers and have a considerable bank balance. Most offset accounts are only offered with variable rate home loans that contain a higher interest rate or with loans that come with a lot of bells and whistles.
You may consider a Split loan if you like the benefits of the Offset Account while still having the reassurance of a Fixed Rate loan. (Please refer to our article on Split Loans for more information)
For this reason, if you tend to only have around $1,000 in your offset account at any one time, you may not see any benefits to having an offset facility and may be better off with no offset facility but a low interest rate and less fees.
Before deciding to have an Mortgage Offset Account you need to weigh up the pros and cons carefully to decide if it is right for your situation.
To see if a Mortgage Offset Account will benefit you, contact us today on 0433 590 621 for a free in home assessment.
*This is general information and does not take into account your own personal financial circumstances, objectives or needs. You should consider this information in light of your own personal circumstances before making any investment decisions.