More Australians have realised the benefits of having an offset account linked to their home loans over the past year, according to Commonwealth Bank (CBA).
CBA data showed a 10% increase in the share of their customers with offset accounts over the year to July. Over the same period, the total balances in these offset accounts grew at the same rate.
CBA executive general manager for home buying Michael Baumann said while this growth could be attributed to seasonality factors, it also reflects that more borrowers are looking for ways to manage their finances, especially amid the upswing in the monetary policy of the Reserve Bank of Australia (RBA).
“An offset account can help borrowers to pay less interest over the life of their loan and reduce the time it takes for them to pay their home loan off,” he said.
Working like a high-interest savings account, an offset account is directly linked to a home loan — its balance is used to reduce the amount of the principal being charged with interest.
According to CBA, borrowers could save $60,000 over the life of a $500,000 home loan with a 30-year term and an interest rate of 4.50% p.a. if they have a starting offset balance of $10,000 and they add a further $100 monthly.
CBA offers borrowers with the option to open multiple offset accounts for free, allowing them to organise their savings according to purpose.
Earlier this year, CBA released a study showing that more than 90% of homeowners have already taken steps to prepare for the impact of rising rate hikes.
The study found that more than a third of borrowers started putting money into their offset accounts
“We know that one in two CommBank customers are more than three months ahead of their home loan repayments and it is encouraging that the majority of Australian homeowners are taking proactive steps to continue to improve their financial position with rates expected to continue to increase over the next 12 to 18 months,” Mr Baumann said.
Westpac also encouraged borrowers to take advantage of offset accounts to help manage the financial impacts of rate hikes. When Westpac passed on the full rate hike by the RBA in June, it encouraged its customers to “check if their loan offers an offset feature”.