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1. What is an offset account?
An offset account is a type of bank account that is linked to your home loan. The money in your offset account is “offset” against your home loan balance. You only pay interest on the difference between your loan and the amount in your offset account.
For example, you owe $500,000 on your home loan and have $100,000 in your offset account. You will only pay interest on $400,000. With an offset account, you save on interest costs and may pay off your loan sooner.
2. How does an offset account help me save on interest?
An offset account can help you save on interest payments by reducing the accruing interest on your home loan. Instead of calculating interest on the entire loan balance, the bank calculates interest on the difference between the loan balance and the amount in your offset account.
3. Is an offset account different from a redraw facility?
Offset accounts and redraw facilities are different, but both can help reduce the amount of interest you pay on your home loan. Here is a comparison:
Offset Account
An offset account is a separate account linked to your home loan. The interest on your loan is calculated based on the difference between the loan balance and the amount in the offset account.
Your offset account can be used like a regular bank account. You can use it to pay your bills, make everyday purchases, go grocery shopping, etc. However, having an offset account does not directly pay the loan principal.
Redraw Facility
A redraw facility is a feature of a home loan. You make extra repayments on your loan, which you can redraw. However, you need to make a request before you can redraw your funds, which can take some time. You can use the money in your redraw facility to reduce the loan principal.
4. Can I use the money in my offset account anytime?
Yes, you can use the money in your offset account anytime to make payments, withdrawals, or transfers to your other accounts. There are no restrictions on accessing your funds. However, withdrawing money from your offset account reduces the amount of interest savings on your home loan.
5. Do I pay fees for having an offset account?
Some banks may charge fees for an offset account, such as monthly or annual fees, to maintain the account account keeping fees, etc. Also, some banks may waive fees if you meet specific criteria. Our experienced mortgage brokers will advise you on everything you need to know about the conditions of your home loan.
6. Can I have multiple offset accounts linked to one loan?
While many home loans typically allow only one offset account, some lenders offer multiple offset accounts linked to a single home loan, especially beneficial for joint borrowers or those managing separate finances.
However, there are situations where multiple offset accounts may be linked to a single loan, such as having joint borrowers. For a joint home loan, each borrower may have their own offset account linked to the same loan.
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