If you're looking for a simple and effective way to reduce the interest you pay on your home loan, then an offset account could be your solution.
What is an offset account?
An offset account is a bank account linked to your home loan, and its balance 'offsets' the balance of your home loan, which can help reduce the amount of interest you pay every month.
How do offset accounts work?
Any balance in your offset account is deducted from your home loan balance when interest is calculated, reducing the interest payable on your loan. For example, if you have a home loan balance of $300,000 and an offset account balance of $50,000, you only pay interest on the remaining balance of $250,000. This means you can save thousands of dollars in interest over the life of your loan.
"Offset accounts offer a major advantage by helping you reduce the interest you pay."
Multiple offset accounts
Previously, having just one offset account linked to your home loan was the norm. However, many lenders now offer the option of having multiple offset accounts. This can be a great option if you want to keep your savings separate for your kids' education, holidays, or everyday expenses. It's worth checking with your lender to see if this is available to you. Remember that each offset account may come with its own fees, so it's important to weigh the costs and benefits of having multiple accounts before making a decision.
Pros and cons of offset accounts
Offset accounts offer a major advantage by helping you reduce the interest you pay on your home loan, which can help you pay off your loan faster. However, remember that offset loans may have higher fees and interest rates than other types of loans. Additionally, it's important to note that the funds in your offset account do not earn interest. If you have a larger balance in your offset account than your loan, consider other savings options to earn more interest on your savings.
Conclusion
Offset accounts are a simple and effective way to reduce the interest you pay on your home loan. Having the right offset set-up can save thousands of dollars in interest over the life of your loan. If you're considering using an offset account, contact us to find out more.