What is a mortgage offset account?

How does a mortgage offset account help my mortgage repayments?

A mortgage offset account is basically a savings account that helps reduce the interest amount you pay on your mortgage. There can be different types of offset accounts, but the important thing to remember is your savings account must be a non-interest-bearing savings account. A mortgage offset account works because the interest is calculated on the difference between the two accounts, not just your mortgage. For example, if you have $50,000 in a mortgage offset account, and you owe $400,000 on your mortgage, then interest repayments will only be calculated on $350,000. That means you can pay off your home loan sooner, because if you reduce the interest payments you have to make, then more of the minimum mortgage repayments can go towards paying off your principal amount. With a mortgage offset account, there can be a direct financial benefit, both short and long term, to keeping as much money as possible in it. The more you have in your mortgage offset account, the more you can reduce the interest amount you pay.

Offset account vs extra repayments

A mortgage offset account is just one of the many features you’ll find on the range of Mortgage House home loans. Another is the ability to make additional, or extra, repayments. Like a mortgage offset account, making extra repayments is another way you can reduce the interest you pay. Both a mortgage offset account and the ability to make extra repayments on your mortgage can save you a lot of money over the life of your loan. A mortgage offset account can be a little more flexible, as you can access your money a little easier if you need to. Making additional repayments into your mortgage offset account can be a good way to have the best of both worlds. You can reduce the interest you pay, and build up a nice little accessible nest egg at the same time, especially if you put your salary in your mortgage offset account. By using your credit card for daily purchases, and paying it off when the bill comes, you may be able to get the best of all worlds. Other features that come with Mortgage House home loans can include:

• Redraw. Like a mortgage offset account, redraw can give you access to your money, but only extra repayments or lump sum repayments you have made to your mortgage.
• Portability. Mortgage portability allows you to take your home loan with you as you move, to transfer it from one property to another.

How much can I save with an offset savings account?

When you start investigating whether the benefits of a mortgage offset account suit you and your family, one of the first questions asked is how much money will it save? The answer depends on a whole range of factors, including the types of offset accounts available. Some mortgage lenders and banks offer different levels of mortgage offset accounts, offering only a partial offset. However, the most common kind of mortgage offset account in Australia is one that allows you to offset 100% of what is in your savings account against your mortgage. One easy way to work out how much you may be able to save in interest repayments is by using Mortgage House’s Mortgage Repayment Calculator below. Choose the home loan that may be suitable, and enter all the details as accurately as you can. Adjust the loan amount, mimicking the amount of money in a mortgage offset account. You will clearly see the difference in your minimum repayments, whether you choose a partial offset or a full offset of your home loan.

Are there any offset account disadvantages?

While there can be plenty of benefits with a mortgage offset account, whether it’s a full or partial offset, it is always important to understand there can be some things to be wary of.  One of the main disadvantages is that banks and lenders may charge a higher interest rate for home loans that include a mortgage offset account. It may not seem a big difference initially, but over the life of the loan it can all add up. Some banks and lenders may also charge extra fees instead of extra interest repayments. That is why it is important to be able to compare home loans that offer a mortgage offset account with those that don’t. One way to do that is by using the Comparison Rate figure.

What is a Comparison Rate?

Banks and lenders are required by law, whether they offer a mortgage offset account or not, to advertise comparison rates wherever they advertise regular interest rates. A comparison rate takes into account all the fees, charges and exits costs that you can pay over the life of the loan. It is a quick way to easily compare apples with apples.

What are the benefits of an offset account?

A mortgage offset account has a range of benefits that can make a big difference to your mortgage. They include:

• Pay less interest. A mortgage offset account means you can reduce the amount of interest you pay immediately.
• Reduce your principal. If you reduce the interest, more of your repayments can go towards your principal amount, helping you pay off your home loan sooner.
• Make your savings work. Instead of just having your savings sitting in either a low interest or no-interest account, they are working hard lowering your interest repayments
• Access your money. By using a savings account as a mortgage offset account, you can access your money whenever, and for whatever, you want.
• Help your tax. You may be able to improve your tax position by using a mortgage offset account. As the money in your savings account can reduce the interest you pay on your mortgage, you may not have to declare anything to the tax office. If you have that money in a term deposit, it may attract tax.

Is a mortgage offset just available with a variable loan?

Mortgage House understands the importance of offering flexibility in its home loan range, and that’s why we offer the mortgage offset account features across both our variable and fixed interest rate home loans. The difference between the two are:

• Variable. A variable rate home loan means your interest rates can increase or decrease at various stages over the life of your loan. Variables such as the state of the national or international economy, or the cost of supplying you the loan can impact rates. Having a mortgage offset account can help you deal with any increases.
• Fixed. If you choose a fixed interest rate home loan, your interest rates will remain the same over an agreed period, usually between 1 and 5 years. That can help with your budgeting and allow you to take full advantage of a mortgage offset account.

How do I find the best home loan interest rate?

Finding a suitable home loan usually starts with finding an interest rate you are happy with. Given the amount of home loans on the market today, Mortgage House knows how tough that can be. That’s why we offer a range of resources and calculators, to give you access to as much information as possible. Our Best Rate Mortgage Calculator can be a great starting point and gives you easy access to all Mortgage House home loans. All you need to do is enter the information as accurately as you can, making choices about what kind of mortgage you want, how much you want to borrow, the estimated value of the property you’re looking to buy, and the type of interest rate you think would best suit you and your family. We will then narrow down our loan options and you can start clicking on them to find out more. To make comparing even easier, click on our Compare Home Loans page to see up to five mortgages laid out for you at a time.