Q. I’ve been doing quite a bit of research about fixed rate loans as well as 100% offset loans. While individually, there appears to be several of these types of loans on the market, I’m yet to come across one that incorporates both features into the one loan. Does such a product exist? If so, why are they so rare?
A. A very good question and I’m glad you asked. The simple answer is: yes you can. The reason you are having difficulty finding this type of product is quite frankly because not a lot of lenders offer it. Let’s examine the reasons for this in more detail. I’ll begin by identifying the benefits of each of these products individually:
Fixed interest rate:
• Security of knowing that your rate won’t rise in a volatile variable rate environment
• Security of knowing what your repayments will be during the fixed period
100% offset account:
• A savings account that is effectively earning you interest at your home loan rate
• Potentially saves you thousands of dollars in interest
• Reduces the outstanding balance on your loan at an accelerated rate using your offset benefit
• No interest to declare
• Unlimited deposit amounts
Therefore, if you were to combine the two products/features, the lending institution doesn’t stand to gain much out of this type of loan:
1. If rates rise, they don’t benefit by charging you additional interest
2. As your rate is fixed, you’re reducing the ‘fixed’ interest charge each month
You’ve probably noticed that there are a number of financial institutions that offer this type of loan, yet they may only offer it on a one-year introductory fixed rate – using it as more of a means of getting the business rather than a long-term benefit.