As the name suggests, an offset account is a bank account connected to your mortgage, and it enables you to “offset” any savings you have against home loan interest you must repay. It may help you reduce your loan term and save you thousands.
What Is An Offset Account?
It is a bank account, but it decreases the interest you pay on your home loan rather than earning interest for you. Every dollar you put in your offset account will lessen the interest amount you pay while in your account.
Since you don’t earn interest on an offset account, alternatively, the savings you have in your offset decreases the amount of loan interest you pay. This is typically a much higher interest rate than you would earn in your bank account. Therefore, funds in your offset account help you save more than you would make in interest.
3 Ways To Maximize Your Savings When Using An Offset Account
There are many factors basis on which you can decide how much can be saved using an offset account, such as interest rate, loan amount, how much fund is in the offset account and how long it stays there.
However, there are a few tips that can help you amplify your savings:
Add Money Often
You will save even more in interest if you can routinely put extra savings into your offset account. If possible, have your salary paid straight to your offset account. It will help you offset your interest during the month.
Add Money As Early As Possible
For instance, if you add $10,000 to your offset account at the beginning of a 25-year mortgage, it will save you more than if you added that money three years into the loan. Any number, even $1200, will have an impact over the long term.
Easy Withdrawal
If you want to pull funds out of an offset account, you can, easy to do. It is simply like withdrawing funds from any standard bank account. It will rearrange the calculation of your mortgage repayments. However, keeping as many funds as possible in your account is recommended to maximize your savings. For instance, pay your statements on the last possible due date, so funds balance your interest for a few more days.
Two Cents
An offset account is a handy option because it allows you to build up your savings account, withdraw your funds when you want it, and repay your mortgage faster.
Typically, not all home loans offer this feature. To benefit from this feature, make sure you get an eligible mortgage to attach an offset account.