Often endorsed as the ‘darling’ of loan features, an offset account can be your best friend when trying to reduce costs on your home loan. But do you actually know how it works? And more importantly, how it can best work for you?
An offset is...
An offset account is a loan feature that is ordinarily available with a premium or package home loan. As the name suggests, it's an account that sits alongside your home loan and aims to ‘offset’ the amount you owe on said loan, which can help you save on interest charged by the bank (and help you pay your loan off sooner.)
Let’s break it down a bit more with an infographic:
Now, let’s say in the above scenario you were on a variable rate loan, with an interest rate of around 3.70% (if your variable interest rate is higher than this, then get in touch!). With that $20,000 in your offset account, you would save around $13,140 in interest, over the life of the loan (on a 30-year loan term).
Let’s up that offset balance to $100,000, and you could be looking at a saving of an impressive $65,702 in interest over the life of the loan!
So, this means the more money you have in your offset account, the more money you’ll save on interest. It also allows you to make the savings, whilst still having access to the funds when you need them. Nifty!
But wait, there’s more!
There is of course more to know about our offset friend. It’s important to note that a lot of the time, there will be a fee involved in having an offset account. This is normally in the form of a loan product with an annual fee and is in place to cover an any additional features that are included in that product (such as an offset facility).
This also means that if you aren’t somebody that has a large amount of surplus cash, you may not be using your offset effectively. Ineffective use of an offset account can actually hinder your money saving efforts, and in some cases, cost you more.
This is where we come in! By looking at a customers whole financial picture, we'll be able to put together a plan that best suits their circumstances and lifestyle, for both now and in the future. For example...
Are you somebody who:
- earns a great salary?
- is a good saver?
- tends to keep a lot of money in a savings account?
An offset account could help you capitalise on those extra funds, and help save you thousands on your home loan.
Are you somebody who:
- tends to move their money around a lot?
- has most of their money in assets, without a lot of surplus cash?
- Likes the security of a fixed rate loan?
You may be more suited to a basic, no fee home loan product, and may not reap the full benefits of an offset account.
It's all in the detail.
Thinking you need an offset account?
Give us a call! As always, its important that any financial decisions you make (no matter how small) are preceded by a chat with a trusted professional. At Pure Finance, we believe that everybody can create wealth through property with a great financial strategy, and loan features such as an offset account are a great place to start!
Want to have a chat about your strategy? We're ready when you are!
1300 664 603
The preceding information is of a general nature and does not take into account personal financial situations and endeavours. You should obtain advice based on your individual circumstances before acting on the above information.