An offset account is ideal for people with home loans because it ensures long-term savings as well as reduces your mortgage. It also helps in reducing the interest incurred. You can obtain 100% offset account and maximize your benefits. Learn more about offset accounts with this informative piece of writing.
What is a Home Loan Offset Account?
A home loan offset account (also known as an offset account) is one of the most powerful ways to save you hundreds of thousands of dollars over the lifetime of your mortgage.
A "100 percent offset account" can sound too good to be true. You cannot be more wrong. With an offset account you will be able to have every cent of your money working for you to:
>> Reduce your mortgage
>> Rather than sitting idly in your cheque or savings account
If you decide to put as much of your spare cash as you can into an offset account, and keep it in the offset account for as many days as possible each month then:
>> Your home loan repayments can be reduced, because your savings are bringing down the interest incurred, and
>> In effect "offsetting" the cost of your home loan
How does a Home Loan Offset Account work?
It is important to know how to use the account effectively. The concept of how a home loan offset account works is best explained in the following example. The example assumes:
>> You have a home loan balance of $100,000, and
>> You have an offset transaction account with a balance of $10,000
So what does this mean? From the example illustrated above the lender/credit provider will calculate the interest payable on $90,000 (i.e. $100,000 less $10,000 = $90,000), which means:
>> Your repayments will help to reduce your home loan balance, and
>> Ultimately your mortgage will reduce much faster
Why Should I get an Offset Account?
If you decide to use an offset account to its full potential, you will benefit by:
>> The long-term savings, and
>> The shorter mortgage life of your home loan can be highly rewarding
So, if you have savvy money skills and can live between pay cheques, you will find an offset account to be very beneficial.
Are there any different types of Home Loan Offset Accounts?
Yes, there are two types of home loan offset accounts available, these are:
>> A full offset account, which is when the interest rate on the credit funds is the same as the rate on the borrowed funds, and
>> A partial offset account, which is when the interest rate on the credit funds is less than the borrowed funds
Can I Start with my Wage?
Yes, you can start by sending your wage directly into your chosen transaction account. So even if you find it hard to save, the money you earn is immediately reducing the interest you pay on your home loan.
So, next time you apply for a home loan, don’t forget to contact a lender/credit provider that offers home loan offset account to its clients.
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