What is an offset home loan?
An offset account is a popular feature offered by lenders in many variable interest rate home loans. It is an everyday bank account that allows borrowers to offset their outstanding home loan balance against the funds available in the bank account
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Offset accounts reduce the interest that a borrower is charged on the home loan, ultimately reducing the long term interest costs of the loan.
How does an offset account home loan work?
A bank account is linked to the borrowers home loan. The borrowers outstanding home loan balance will be reduced by the available funds in the bank account for the purpose of calculating interest.
Can I save money on my home loan with an offset account?
In summary, Yes. How much you can save depends on:
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The offset account balance.
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How much you contribute to the offset account on a regular basis and,
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The balance owed on the home loan.
Ultimately, the more money you have in your offset account, the more money you will save in regular interest calculated on your home loan.
What Are The Advantages and Disadvantages of an Offset Account Home Loan?
Offset account advantages
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You can arrange to have your salary deposited into your offset account to maximise your savings.
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You can significantly reduce the interest costs associated with your home loan.
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You can reduce the time that it takes to pay off your home loan.
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You can access funds as needed for regular expenses.
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It is more flexible than other home loan products such as a redraw facility.
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The interest earned may not be taxable as it contributes to reducing the home loan principal amount.
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An offset facility encourages borrowers to save money.
Offset account disadvantages
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The home loan lender will typically charge you fees.
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Some lenders may charge you a higher interest rate to compensate them for the reduction in interest earned on the loan.
What is the best offset account home loan?
For the best offset account home loan you should look at the ones that:
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Have the lowest fees.
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Provides a range of transaction types.
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Reduces the total amount owed on your home loan by the balance of your offset account.
Types of Offset Accounts
Offset accounts come in two forms. They are:
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Balance offset account
In a balance offset account the balance of the borrowers offset account is subtracted from the home loan balance to calculate the interest component of the loan.
2. Interest offset account
With a interest offset account the interest payable on the home loan is reduced by the amount of interest earned in the offset account.
What's the Yellow Line?
Offset account home loans are a great way to save money on your home loan and pay it off sooner.
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There are a vast range of products and banks are extremely competitive.
It is best to seek professional financial advise to ensure you obtain the most appropriate home loan product for your needs.
Yellow loans has a vast range of lenders with a range of products to achieve the best results on obtaining the best home loan deal for you. You can contact us here and we can get your future looking bright.