January 08, 2024 by Mortgage Choice Eltham
Buying a home and taking out a loan is normally the most significant long-term financial decision most Australians will make. Although a home loan typically has a 20 to 30-year term, there are small changes you can make to the way you approach your loan that could shave years off repayments. One great way to pay your home loan off faster is to use an offset account.
What is an offset account?
An offset account is a transactional banking account that is linked to your home loan. Like most banking deposit accounts, offset accounts typically allow you to make transactions online and in person via a debit card. But how do they help you pay off your mortgage faster?
As the name suggests, the amount of money saved in your account offsets the balance of your mortgage. For example, if you have a home loan of $500,000 but have $10,000 saved in your offset account, you only pay interest on $490,000 of the loan. This might not seem like a substantial change, but it could save you thousands of dollars over the life of your loan, just by keeping your savings in a specific account.
The best part is that offset accounts are typically flexible – you can deposit or withdraw funds as needed, but you’ll need to remember that the amount of money in your account directly affects how much interest you’ll be paying on your home loan.
So, how do you get started?
Make sure an offset account is right for your needs
Most lenders offer a variable rate home loan that can incorporate an offset account, but you’ll need to take a good look at the details. For example, some offset enabled home loans will incur extra fees or a marginally higher interest rate. Additionally, others may only count a certain percentage of your savings towards your loan offset. Shop around and see what options are available to you and choose what best suits your needs. Thel mortgage broker Maroubra team can also assist in finding the most accurate and up-to-date information.
Consider using your offset account for everyday transactions
As mentioned above, offset accounts typically allow for you to make transactions online and in person. This not only means that you could be making your everyday purchases through this account; you can also have your income deposited directly into your offset account to keep the balance as high as possible.
Interest is normally calculated daily on offset accounts, meaning every extra dollar in your account each day helps to reduce the interest you pay on your home loan.
If you have a credit card, make the most of it
While regular deposits into your offset account can be beneficial when interest is calculated daily, regular withdrawals reduce the offset benefit. So, how can you maximise the benefit of directly depositing your income into your offset account while still managing your everyday expenses?
If you have the self-control to ensure you only spend what you can afford, a credit card can come in handy for your everyday expenses. For example, limiting your withdrawals from your offset account to the end of the month means that you have more money in the account for longer. Just make sure you’re paying off the full balance of your credit card within the interest-free period to ensure you’re not charged any interest on your credit card.
Let's explore your home loan options
Do you currently have an offset account and looking at how to maximise it? Or did you miss out on an offset account first time around? Let our Mortgage Broker Eltham team have a look at your goals and finances to see if an offset account would benefit you.
Get in touch with Mortgage Choice in Eltham on 0428 152 227 or email brendan.moon@mortgagechoice.com.au
