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Mortgage Offset Accounts

When you take out a home loan or other type of loan transaction type an offset account can be opened and linked to this loan.

This account is simply a transaction account; the fundamental difference with this account is that the funds in the account, instead of having interest paid it offsets interest that would have payable on the loan.  The idea of an offset account is for you ‘to make the most’ of your funds to reduce the interest payable on your home loan, thereby reducing your loan term.   So how to explain this simply, say you have a loan of $300,000  with a loan offset account with $5000 in it, instead of paying interest on $300,000 you pay interest on only $295,000 .  

Some things to consider when looking into your mortgage and a Loan Offset Account is 

  • That there is no minimum or maximum offset amount and if there is that it won’t affect the way you wish to use the account.
  • The percentage of the interest rate this account will offset – best being 100%. 
  • That interest rate that it offsets is equal to the interest payable on your loan.
  • Interest for a savings account is less than the interest on your home loan

Like all Bank accounts, extra’s and promotions you need to research the package and identify if it will suit your individual needs. It is clear that a mortgage offset may help you potentially trim the time of your loan as the money you put into it works more on paying the principal aka less interest payable over the life of the loan.  It is important that you do your research or seek further information on whether this home loan product is right for you.   

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