Could an offset account help you save?
Are you looking at ways to save interest on your home loan? Did you know how an offset account could start putting money back into your pocket?
You’re not alone. More than 47% of Australian mortgage holders’ do not know what an offset is – or how it could be helping them reduce the interest they pay on their home loan.
What is an offset account?
An offset account is a transactional account that is linked to your home loan. The credit balance that sits in your transactional account is offset against your outstanding loan balance. This means that any money sitting in your offset, will not only reduce the interest you pay on your loan but also its term.
For example, if you have $300,000 owing on your home loan, and $20,000 in your offset, you only pay interest on $280,000. Even if you have a smaller amount siting in your offset, over time you can make significant savings on interest.
Let’s see what a difference an offset account could make over a 25-year term:
Jenny and Rob have $300,000 owing on their home loan. Their interest rate is set at 4.00% p.a. which means their repayments are $1,584 per month.
If they had $20,000 in their offset account, the interest paid over the life of the loan would decrease and they’d wipe years off their loan:
|Amount in offset||$20,000|
|Years removed from home loan||2 years, 8 months|
The good news is that the money you hold in the offset account can be easily accessed if and when you require. Many home loan packages will allow you to link a Visa debit card to your offset, meaning that you can easily transact on the account.
How do I choose a good offset account?
When choosing a home loan package and offset account there are some things to watch out for.
One of the first things you want to confirm is what percentage of your balance, will be offset against your loan. Look for a home loan package that offers 100% offset accounts. That way you will ensure 100% of the money you save in your offset account is reduced from your home loan balance.
Choose a lender that offers multiple offset accounts per individual loan. By having the option of multiple offset accounts, you can really begin to advance your savings strategy.
How can I use an offset account?
How you use your offset account is up to you. However, these are common ways people are using offsets to save on interest.
- Different ‘jam jars’ for saving goals – many mortgage holders are choosing to use multiple offset accounts to advance their saving strategy. You may choose to set up 3 or 4 offset accounts and use each account for a particular saving goal such as: ‘School fees’, ‘Hawaii Holiday’, ‘Harley Davidson’. Whatever your saving goal, by having an offset account you’re going to be saving on interest, no matter the balance.
- Wages – one of the most common uses of an offset account is to have your wage automatically paid into it. As interest on a mortgage is generally calculated daily, having money sitting in your offset account, even if only for a few days, will reduce the amount of interest you pay. In this scenario, people choose to use their offset as their main transactional account.
- Lump Sums – some people may choose to have an offset account linked to their home loan where they deposit lump sums. This may include things like: end of year bonuses, commissions or payouts.
To find out more about how you could benefit from an offset account, or to learn more about Gateway’s Premium Package Home Loan product, speak with one of our Lending Specialists on 1300 302 474 (Monday – Friday, 8am – 6pm, AEST).