If you’re starting your journey to becoming a homeowner, you will no doubt be learning a lot of new key phrases associated with mortgages. One of these will likely be “offset accounts”, but what is actually the function of these accounts? And how can they benefit you? We’ve compiled some information about offset accounts and how they may be of assistance to you as a borrower.
What is an offset account?
An offset account is linked to your mortgage account, and can help to reduce the amount of interest you pay on your home loan. The offset account is basically a funds account that, due to its connection to your mortgage, contributes to lowering the outstanding balance of your loan.
What are the benefits of an offset account?
- The most attractive benefit of having an offset account attached to your mortgage is that it will help to lower how much interest you pay. Basically, you will pay interest on the net balance once the funds in your offset account are factored into your home loan, which will be your loan minus the money in your offset account. For example, if you have a home loan of $500,000 and an offset account with a balance of $50,000, you would only pay interest on $450,000.
- Another benefit of having an offset account is the flexibility associated with this. It is similar to making additional repayments to your home loan, but with the option to access the funds at any time. This can be hugely beneficial for when unexpected expenses pop up, or if your situation changes and you need to remove the funds from the account.
How do I make the most of my offset account?
- It is important to note that home loan products with an associated offset account may have higher interest rates. Make sure you consider this and examine whether the savings are still worth it for you.
- Keep an eye on your offset account and try to make regular contributions; these can help to further reduce the interest you’re paying on your home loan. In the case of interest rate rises, you might elect to add to the funds in your offset account to help balance out the increase.
Attaching an offset account to your home loan can be a great financial tool for lowering the amount of interest you’re paying, and you will still have access to the funds in your account. When considering an offset account be sure to speak to an expert for help, as it is important to consider whether it is a worthwhile option for you and your situation. Book an appointment with one of our Borro brokers today or call the team on 1300 1BORRO.