According to Westpac’s most recent Home Ownership report, 48% of Australian homeowners don’t know what an offset account is.
So what exactly is an offset account?
An offset account is essentially a savings account that’s connected to your home loan. When you deposit money into your offset account, your home loan lender will deduct that amount from your total home loan when calculating interest.
We used ANZ’s offset account calculator to come up with this example: Let’s say you have a $500,000 home loan with a 5% annual interest, and the initial loan period is 20 years. If you keep $10,000 into your offset account, the lender will only calculate interest based on the difference:
$500,000 (home loan) – $10,000 (deposited in offset account) = $490,000
Only $490,000 will be calculated with the 5% interest rate per annum. You can save $16,727.60 in total or five months worth of home loan repayments. How awesome is that?
The benefit of getting an offset account is that you can withdraw your money any time. This, however, can affect how much you save in total.
Here are a few things to remember when getting an offset account:
Get the full offset account
There are two types of Offset Accounts: Full and Partial. Full offset accounts deduct 100% of your balance from the total home loan. Interest will only be calculated based on the difference. Partial offset accounts, on the other hand, will only deduct a certain percentage of your offset account balance. Be sure to clarify which of these two the lenders offer.
Make sure there’s no balance limit
The more money you keep in the offset account, the more you save on interest fees. If there’s a limit to the offset account, you may not be able to maximise your savings.
Check for additional charges
Some lenders charge extra fees for loans with offset accounts. When getting an offset account, see which lender can offer you the best value. Getting an offset account won’t be worth the trouble if you can’t save money at all.
There you go! You’re no longer part of the 48% who have no idea what offset accounts are. If you’re thinking of taking out a home loan and you’re also saving money aside, consider getting an offset account. Not only will you save money; you also get to save time paying off your home loan.
You can find more information on offset accounts here.
Got any tips and tricks on paying off home loans quickly? Share them with us in the comment section below!