A mortgage offset gives borrowers the best of both worlds, with the ability to grow your savings account and reduce your mortgage interest. It makes you wonder why we don’t we all have an offset account…
If every borrower knew exactly what a mortgage offset could offer, then perhaps we’d all be running to our lender’s requesting this feature!
An offset account is essentially a savings or transactional account that runs in conjunction with your loan account. Itoperates as regular transaction account, giving you easy access to your funds via internet or phone banking.
But the benefit of an offset account is that the interest earned on anyfunds in the account is automatically deposited into your home loan account, which has the effect of reducing the balance of your loan.As a result,your interest payments are lower.
Full offset accounts (100% offset) are the best option, as these accounts earn interest equal to the interest you‘re paying on your home loan.
For example, let’s say you own a home worth $400,000, with a mortgage of $275,000. Assuming a mortgage interest rate of 7.3%, your monthly interest repayment
will be $1,885 on a standard 30-year mortgage.
If you have $50,000 in a 100% offset account, that $50,000 will earn interest at 7.3%. That’s an interest saving of $304 per month – and you’ve earned this simply by linking your savings account to your mortgage.
If you were to place this money into a high-interest savings account, you’d only receive a return of around 6%, and any interest would be subject to tax.
With an offset account, there’s no tax payable on the interest savings and best of all, you still have access to your funds, as it’s safely tucked away in a savings account.
There’s no doubt, offsets are a fantastic mortgage feature – but that doesn’t mean they’re necessarily suitable for everyone.
“The right loan is going to be one that meets all of your needs – including, of course, interest rate and fees, but also things like service levels and loan features,” saysShannon Ingram, Smartline personal mortgage advisor.
“Offset’s are not for everyone, though. [Some people] aren't comfortable budgeting, and will just blow through the savings… so I'll still write a principal and interest loan for them, even though it's not the best thing looking purely at the dollar figures. At the end of the day, it's about what you feel more comfortable with.”
Whether you are looking to buy your first home, move home, refinance, or invest in property, a mortgage broker can help. Access loans from all the major lenders, get help with paperwork – plus there is no charge for this service. Get help from a local mortgage broker