What is an Offset Account?
If you are looking to reduce the interest you are paying on your home loan, an offset account could help minimise your interest repayments – as well as potentially shortening the overall term of the loan.
When you take out a variable interest rate home loan, a transactional account is created and linked to your loan. This account becomes your offset account and doubles as your everyday savings account, where you have the flexibility to access your money whenever you need it.
The benefit of this linked transactional account is that any balance in your everyday savings account is – as the name suggests – offset against an equivalent portion of your home loan balance. As a result, any interest on the loan account will then be calculated and charged on the remaining loan balance.
Let’s take a look at an example. If you have a $300,000 home loan and a credit balance of $30,000 in your 100% offset account, you will only pay interest on a home loan balance of $270,000. This means you can pay less interest on your home loan and over time, these savings can really add up. Plus, if your regular repayments are kept unchanged, you could start to contribute more to the repayment of the principal portion of each repayment and pay off your home loan faster.
The great news is that every cent in your offset account can reduce your home loan interest. So, even if you have a small amount sitting in your offset, you can still make interest savings and effectively cut years off your home loan. You can build up your offset account by making regular deposits or arrange to have your salary directly deposited every payday.
You can also set up multiple offset accounts linked to your home loan. If you’ve got some big goals to save for – such as an overseas holiday or a new car – you can see how you’re tracking with separate accounts for each goal while saving interest on your home loan at the same time. By having multiple offset accounts, you can manage your debt and savings strategies.
Think an offset account might be suitable for you?
Gateway’s Premium Package Variable Home Loan offers you great flexibility, with the opportunity to have multiple offsets and draw funds whenever you need.
Contact us online about a new home loan or add an offset to your existing variable rate home loan. Alternatively, call 1300 302 474 to chat to a Gateway lending specialist today.
Learn more about Gateway’s Offset account.
Important Note: This article is for general information only. It does not take into consideration the individual needs or financial situation of any reader and must not be relied upon as financial advice. Should you wish to make a decision based on this information, you should seek independent financial advice.