What's an offset account – and how does it work?
An offset account is like an everyday banking account, except with one big difference: it’s linked to your home loan.
Any money you have in the linked account is ‘offset’ daily against your loan balance. This reduces the interest you are paying on your home loan – while still giving you access to your money whenever you need it.
Let’s say, for example, your outstanding home loan balance is $900,000. If you have $75,000 in your offset account, you will then be charged interest only on $825,000 (e.g $900,000 minus $75,000).
However, your monthly repayments will stay the same even though you are being charged a smaller amount in interest. So more of your money will go towards paying off the principal portion of your loan, which can help you pay off your mortgage faster. Brilliant.
What are the different types of offset accounts?
There are two main types of offset account in Australia:
100% offset account – where all the money in the account is offset against your loan balance (as in the above example)
Partial offset account – where only part of the balance is used to offset your loan
What’s the difference between an offset account and a redraw facility?
Redraw facilities can also save you interest – but they work in a significantly different way to an offset account.
With a redraw, any money you pay into the facility is seen as an extra repayment on your mortgage. These extra repayments reduce your loan’s balance and therefore how much interest you’re charged. You can then ‘redraw’ or borrow back these extra payments in the future should you need them. However, fees and withdrawal restrictions might apply. Also, redrawing technically involves taking out a new loan, there might be tax consequences.
So which is better – offset or redraw?
There isn’t one answer, as it depends on your individual circumstances. At Eventus Financial, we can help you weigh up the pros and cons of each to see which might suit you best.
What types of home loans come with an offset account?
Typically, offset accounts are a feature associated with variable-rate home loans. That said, some fixed-rate loans also come with offset.
Is an offset account right for you?
Everyone is different. So a loan feature or product that might be a good fit for someone else won’t necessarily suit you, given that your unique circumstances would be different.
That’s why it pays to work with an expert mortgage broker like Eventus Financial. We can help you consider all your options, so you end up with a product that is right for you.
Looking for the best mortgage broker in Sydney? Eventus Financial is a multi-award-winning mortgage broker with over 300 five-star Google reviews. Schedule a no-obligation consultation with Alex to find out how we can help you with your home loan.