WHAT IS AN OFFSET ACCOUNT? DO I NEED ONE?

An offset account is a powerful tool that can help you save money on your mortgage. Here’s a breakdown of how it works and whether it could benefit you:

What is an Offset Account?

An offset account is a transaction account linked to your mortgage. The balance in this account is used to offset the outstanding balance of your home loan. For example, if you have a mortgage balance of $300,000 and $20,000 in your offset account, you’ll only pay interest on $280,000.

How It Reduces Interest

The primary benefit of an offset account is its potential to reduce the amount of interest you pay on your loan. Since you’re only charged interest on the reduced loan balance, this can significantly decrease your total interest payments over the life of the loan. Additionally, it can help you pay off your loan faster, as more of your repayments go towards reducing the principal rather than interest.

Types of Offset Accounts

There are typically two types of offset accounts: full offset and partial offset. A full offset account means that every dollar in the account offsets the mortgage balance completely. In contrast, a partial offset account only reduces the loan balance by a certain percentage of the account balance.

Benefits

• Interest Savings: By reducing the interest charged on your loan, you can save a substantial amount over time.

• Loan Term Reduction: Paying less interest means you could pay off your loan earlier.

• Flexibility: Offset accounts are usually transaction accounts, so you can access your funds anytime, which provides flexibility.

Considerations

 Before opening an offset account, consider the following:

• Fees: Some offset accounts come with additional fees. Make sure the benefits outweigh these costs.

• Minimum Balance: Ensure you maintain a balance in the offset account to maximize its benefits.

An offset account can be a valuable addition to your mortgage strategy if you have substantial savings and want to minimize interest costs. Evaluate your financial situation to determine if it’s the right fit for you.