An offset account is a feature of a home loan, which if used effectively, can save you thousands in interest over the life of your home loan. The key to making an offset account work for you is to deposit as much as you possibly can into this account. The money that this account holds is then taken off your home loan principal, which, in turn, reduces the amount of interest that you pay.
If you deposit every dollar that you earn into your offset account and then only withdraw funds that you need to cover your living costs, then any cent you have is working to pay-off your home loan. Many people have their pay and family benefits and other payments deposited into their offset account. This then means that all their money is working to reduce their home loan and that they are continually encouraged to save.
The amount you’ll save in interest on your mortgage will depend on how much you keep in the account and on how much your home loan is worth. For instance, let’s say you have $10,000 in your offset account for the life of your loan and you borrowed $320,000 @ 7 percent over 25-years. Over the lifetime of your loan you’d save yourself $46,000 and you’d shave 18-months off your loan term.
As with any home loan features, an offset account comes with terms and conditions. Therefore, before you add an offset account to your home loan make sure you know what the minimum requirements are. This will save you paying additional fees and incurring penalties. You also need to work out what an offset account will cost you over the term of the loan. Many home loans without features, also known as ‘no frills home loans’, come with a cheaper interest rate. So you need to work out if you’ll actually use an offset account, and how much you’ll save before signing up for one.
Do you want to know more about offset account? Then contact eChoice today.