What is an Offset Account?
An offset account is a transaction account linked to your mortgage, which offsets the balance against your home loan. Essentially, the money in your offset account reduces the amount of interest charged on your mortgage.
How Does It Work?
The offset account functions like a regular savings or transaction account that comes with a debit card. You can deposit and withdraw money as needed. The main difference is that the balance in the offset account directly impacts the interest you pay on your home loan.
Interest is calculated daily, so the more money you have in your offset account, the less interest you’ll pay on your mortgage.
For example:
Advantages of Having an Offset Account
1. Interest Savings
The primary advantage of an offset account is the potential for significant interest savings. By reducing the amount on which interest is calculated, you can save thousands over the life of your loan.
2. Reducing Loan Term
With lower interest payments, more of your repayments go towards the principal balance, helping you pay off your loan faster.
3. Financial Flexibility
An offset account offers financial flexibility, allowing you to access your funds whenever needed. It operates like a regular transaction account, providing liquidity while still benefiting your mortgage.
Considerations Before Opening an Offset Account
Using an offset account effectively will help you save on interest and reduce the term of your loan.