An offset account is a type of bank account, which is linked to your home loan account to help you save interest on your loan.
A mortgage offset account, unlike a normal bank account which would accrue interest on your deposits and paid interest, instead reduces the interest payable on your home loan. This effectively means that the funds sitting in offset can reduce the minimum amount of interest payable, allowing your repayments to pay off your home loan faster and get you closer to becoming mortgage free.
When comparing an interest earning transaction account and an offset account – the interest earned on a transaction account generates interest generally significantly less than an offset account, meaning that you gain a far greater advantage from the use of an offset account.
Not all offset accounts are the same – here are the common types:
Fully transactional 100% offset account: this type of offset account reduces your interest requirements at 100% of the amount you have in the account – ie if you have $10,000 in your offset account, the interest payable on your home loan with reduce as if you had paid $10,000 off the home loan. This account will generally come with debit or EFTPOS cards and the ability to use online banking.
Non-transactional 100% offset account: this type of offset account functions the same as the above, the only difference is that it does not have the transaction capabilities of debit or EFTPOS cards. In general these types of offset accounts are more common with smaller lenders and mortgage manager products.
Partial Offset accounts: Less common these days, partial offset accounts do as their name implies – only providing a partial offsetting based on the funds in the account. These types are uncommon and are generally only used on fixed loans.
Do I need an offset account?
Generally having more features which can help you save will be helpful – but it’s worth noting that many lenders will only allow offset accounts on loans with annual or monthly fees, or slightly higher interest rates. Therefore it’s important to work with a broker who can work out what will provide the best long term results for your situation.
Precision Funding has access to low cost full featured loans which include offset accounts, allowing you the best of both worlds.
Want to understand whether offset accounts might be useful for your next loan? Connect with us today to discuss your needs and find the best structure to meet your long term goals.