What does an offset account offer?
Are you wondering how you can pay your home loan off sooner, while still having cash for everyday expenses and to save for a future goal?
One option is to use an offset account, which is an everyday savings account typically linked to a variable, rather than fixed, home loan. An offset account allows you to reduce the term on your home loan, shave thousands off what you owe and still give you access to the money in your bank account.
There are two types of home loan offset accounts available, these are 100% offset accounts and partial offset accounts.
The vast majority of offset accounts available in Australia today offer a 100% offset.
How does an offset account work?
You make regular deposits, such as your salary, bonuses or other income, into the account to offset the balance owing on your home loan, so you are only paying interest on the principal The more money you have in your offset account, the more you can save on your home loan, as you’ll be getting charged less in interest.
What are the benefits of having an offset account?
If you make extra repayments on your home loan, a redraw facility lets you take the extra money out again if you need it. So rather than saving your money in a separate account, you can reduce the amount of interest charged on your loan―by paying more than you need to—and accessing the extra money if you need it. For example, to pay for a house renovation, a holiday or school fees.
An offset account is more like a traditional savings account that you can use for paying everyday expenses and making one-off purchases, while at the same time reducing the interest and the time it takes to pay off your loan.
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