In recent years, home loan products have continued to get better and better, and now many come with a host of features that can make a borrower’s life easier and save significant amounts of money.
One of the best features to consider when you take out a home loan or refinance is an offset account.
An offset account is like a transaction account that works in conjunction with your home loan.
Offset accounts are a great way to help save on interest, while still offering a great deal of flexibility to homeowners.
The beauty of an offset account is that it pays (or saves) interest at a similar rate to that of your home loan.
One of the most popular types of offset account is the 100% offset, which matches your current home loan interest rate.
For example, if you owe $100,000 on your home loan and elect to put $10,000 in your offset account, you are effectively only paying interest on $90,000 if you use a 100% offset.
What makes it even better, is that you still have full access and control over the $10,000 in your offset account. The offset account acts just like a transaction or access account, and you can use it for everyday transactions.
Given how flexible an offset account is and because it can save interest, many people use it as the primary account to hold any spare cash, and some even use it as a savings account. Because the interest you’ll be saving will be greater than what you can earn from a savings account, it is a very effective option.
Likewise, having an offset account that you can use in conjunction with a credit card can make your money go even further.
For example, if you were to put all your monthly expenses on your credit card instead of paying for them in cash, you would find that you have quite a bit of spare money each month.
By leaving that money in your offset account over the course of the month, you’ll be saving interest. Given that most credit cards don’t need to be paid off for 30-45 days, the credit card company is effectively helping you save interest on your home loan.
Offset vs Redraw
A common question many people ask, is which is the better option – an offset account or a redraw facility?
In essence, both will deliver the same outcome, assuming it is a 100% offset account. However, the real advantage of an offset account over a redraw facility is that you have full control of your funds.
Given that an offset account is basically a transaction account, you can move money around at any time and take advantage of things like paying bills with credit cards.
A redraw facility is still at the discretion of the bank, and there are often limits on the number of redraws you can make over a given period of time. There can also be costs involved.
The next time you’re looking at taking out a new home loan or refinancing, you should speak to a mortgage broker about finding a home loan product with an offset account. There are far more benefits than meet the eye, and they can save you a significant amount of money over time.
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