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Would an offset account suit you?
What is an offset account?

In the simplest terms, an offset account is a separate savings account that you can use to offset daily the balance on money held in this account against your actual home loan account / mortgage.

This means that any money that sits in your offset account will earn what is called ‘notional interest’ at the same interest rate as your linked home loan account.

The notional interest that you earn on a weekly or monthly basis in your offset account is then ‘offset’ against the interest that is owed on your home loan account. In this way, your offset account helps you to reduce your home loan faster and can help you to build up more equity in your home over time.

If, for example, you have a home loan balance of $200,000 on your mortgage account and a balance of $10,000 in your linked offset account, you will only pay interest on the $190,000, which can represent a significant saving over time.

In short, with an offset account attached to your mortgage account, you can be sure your money will be working even harder for you!

  
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What are the benefits of having an offset account?

An offset account provides you with:

  • The facility by which you can potentially reduce the principal amount that you owe on your mortgage by offsetting the interest that you earn in your offset account against your mortgage.
  • The opportunity to potentially increase the equity that you hold in your home.
  • An account that you can use as your every day account, ie, you can access your funds via ATMs and a chequebook etc, so you can use your money as you need to – with the balance held in the account still working for you.

What are the disadvantages of having an offset account?

As with most things, where they are pros, there are also cons.

  • With an offset account, you can be tempted to access and use your money rather than keeping as much of it as you can working in the offset account to reduce your mortgage and build your equity.
  • Some lenders will charge you for attaching an offset account to your home loan account (because it ultimately means that by reducing the interest payable on your mortgage, you are reducing the money they earn). So, it’s a good idea to ask if there are any additional fees involved before you sign up for an offset account.