When researching home loans, you may have heard the term ‘offset account’ being used by different lenders. To give you some clarity, here is an explanation of what this term means and how you can potentially use it to your advantage.

A mortgage offset account (or a home loan offset account) is a transactional account that is linked to your mortgage account.

This account can be used the same way you would use a general savings account. You can use it to withdraw cash, to pay bills, have your salary deposited in it and use it to build your savings. You will have a card linked to this account, the same way you do with your other regular bank accounts.

The benefit of an offset account is that the money in it is taken into account as part of your regular interest calculations. Thus, it ‘offsets’ the amount you owe on the loan.

To make it easier to understand, this is a very basic example:

  • Jim and Jane owe $400,000 on their mortgage
  • They have $20,000 of savings in their offset account
  • When their lender calculates interest, it does so based on $400,000 minus $20,000, therefore only an amount of $380,000
  • John and Jane have lower interest payments and are able to pay off their mortgage sooner

While a mortgage offset account doesn’t affect your regular repayment amount, the result of this type of setup is that your monthly interest charge is lower, potentially saving you thousands of dollars and helping you reach your home ownership dreams faster.

A regular amount of $20,000 in your offset account can mean that your mortgage is paid off anywhere from 2 – 3 to several years earlier (depending on your interest rates and the amount you have borrowed). Even if you only have a small amount of money sitting in your offset account at any given time, it can still go towards shortening the lifespan of your home loan.

Offset accounts can save you a significant amount on your repayments each month depending on the balance of the offset account and the loan terms. Speak to your local LJ Hooker Home Loans specialist to find out how an offset account can potentially be incorporated into your property purchase or investment strategy.

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