What's an offset account?
An offset account is a transaction account linked to an eligible home or investment loan.
The benefit of an offset account is that the money you have in this account can be used to “offset” the amount you owe on your home loan, and you'll only be charged interest on the difference. But you can still access the money in your offset account just like you do with a standard transaction account, using a debit card or at an ATM.
This is how it works:
- Your home loan balance is $350,000 dollars
- And you have $25,000 dollars in your offset account
- So, you'll only have to pay interest on $325,000 dollars.
Now using that example, let’s see how much you could save in the long run.
Let’s say you pay your home loan off over 30 years, the interest rate stays at 5% per annum, you make all your repayments as required and you have a constant daily balance of $25,000 dollars in your offset account.
You could potentially save $75,000 dollars in interest and pay your home loan off over 3 years ahead of schedule.
So, how much you do save, depends on things like changes in interest rates and how much you have in your offset account.
So there you have it, linking your home loan to an offset account could help you pay off your loan sooner by reducing the amount of interest you pay so more of your repayments can go to reducing the principal amount of your loan.
And because you can access the money, like a normal transaction account, it’s a great option. You can even have your salary deposited directly into your offset account to help you save as much as possible and make your money work harder for you!