Offset accounts are marketed by lenders in many different ways. At the end of the day, an offset account is a savings account that allows you to use your own money to reduce the outstanding balance of your home loan for the purpose of daily interest calculations.

Offset accounts still have many of the same features as a regular savings account, like deposits, withdrawals and accrued interest, but the real power here is that you can reduce the interest you are paying on your loan every month and apply the additional amount to your repayments which long term means you will pay your mortgage off sooner and potentially save tens of thousands of dollars in interest.

For example.

If your outstanding home loan amount is $800,000 and you have $50,000 in your offset account, you will only be charged interest on $750,000, which will continue to reduce as your principle reduces.

Over the course of a 30-year loan, this is a total saving of over $175,000 in interest and more than 3 years’ worth of repayments!

By comparison the same investment of $50,000 in say, a term deposit depending on interest rates will yield $30,000 to $40,000 in interest if continually reinvested over the 30 years, without the added flexibility and financial security that comes with being able to make deposits and withdrawals

If you aren’t currently using your offset account, or you don’t have the facility available, you should definitely be talking with an expert to help you understand the long-term benefit that this type of feature can have.

What to look for in a good offset account.

1.   No Balance Limit

The best offset accounts offer no limitations around the balance of the account, or the impact it has on your daily interest calculations. The more you save, the more YOU SAVE.

2.   Is the interest rate equal to your mortgage interest rate and will this move in line with any changes?

It is important to find out how offset account interest rate offering will change in line with your mortgage interest rates. The power of these accounts is that the interest you are getting paid on your savings balance is equal to the interest you are paying on your mortgage. Make sure that these will remain in line with each other to ensure your offset account strategy is future proof.

3.   Low Interest Credit Cards

Often offset accounts will come with the option of low interest credit cards. Depending on the lender, these cards can be used effectively to manage your day to day household expenses with the view to paying the balance in full at the end of the month. This means salaries can be used to bulk up the balance of offset accounts monthly, which can have significant impacts over the duration of the loan.

If you would like to find out more about these options please feel free to reach out for a confidential and obligation free discussion.

Bernie Kyne
Mortgage Consultant
0400141757
bernie.kyne@mortgage-express.com.au