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What is an offset account, and do I really need one?

2 min read Key takeaways:

  • Save on home loan interest being charged
  • Maintain the flexibility to transfer money in and out

If you have ever purchased a property and have had discussion with brokers and bankers, then you would probably be familiar with the term offset account. The purpose of an “offset account” is in the name. Any interest that could be potentially charged to a home loan account is instead “offset” by the balance that is held in the actual offset account.

Example – If you had a loan for $500,000 and had an offset account with a balance of $100,000, then effectively you would only be charged interest on the remaining $400,000. So, assuming an interest rate of 3% - you would save $3,000 per year of interest being charged due to your offset balance of $100,000.

What is the benefit:

  • Your money is working harder as the home loan rate is generally higher than a normal savings account
  • As interest is being calculated daily, for every dollar that you allocate towards your offset account, it is saving you money
  • Flexibility of transferring money in and out as this account acts similar to an everyday banking account
  • No limitations on how much can leave within the account

**What is the risk **

  • Not every bank offers offset accounts, and if they do, there could be potential account fees or package charges
  • You may have to transfer your funds into an everyday banking account to withdraw funds as the offset account may not have a direct debit card

Please ensure you speak to a licensed mortgage broker or banking institutions if you have further questions around lending structures and borrowing.

Feel free to contact Paul from Emergence Finance https://www.emergencefg.com/

Nov 16, 2020 First Home Buyers and Property Market
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