You may have heard of offset accounts and that they may help you pay off your home loan faster by saving you money on repayments. But what is an offset account and how does it work?
What is an offset account?
An offset account is a transaction account linked to your eligible home loan. More specifically, it’s linked to the variable portion of your loan only. You can use an offset account as you would any other transaction account - making deposits and withdrawing money.
It’s an account you can keep your savings in, or even have your pay deposited in regularly. This is all while you benefit from it by linking it to your home loan to reduce the interest charged on your home loan.
When you keep your offset account for a long time, with a high balance, you might just be able to pay off your home loan sooner by paying less interest.
How do I use an offset account to save on my home loan?
To make it easy to understand, we’ll give you an example.
Say you have a home loan of $500,000 and deposit $15,000 of savings into an offset account.
If you link your offset account to your home loan, you would be charged interest on only $485,000 of your loan ($500,000 loan value - $15,000 offset amount).
As long as you don’t touch your $15,000 savings, you’ll continue to pay interest on the $485,000 amount.
This amount could also increase and decrease depending on what loan repayments you make, as well as what you put in and take out of your offset account.
What’s the difference between an offset account and redraw?
An offset account is a separate transaction account that may help you to pay off your home sooner and reduce your loan interest payments.
A redraw on the other hand is a feature attached to your loan that can allow you to withdraw additional payments you’ve made above the minimum amount of your scheduled payments.
Sometimes there are limits set per year on this and you may not always have the option to withdraw via an ATM.
Buying a property is a journey. Whether it's your first purchase, a life-changing move or a long-term investment, the journey is never the same. We understand each buyer is different and so is each home. That's why we have a range of home loans to suit your needs.
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Things to consider
Depending on your loan type, there’s a few things you might want to consider before setting up an offset account against your home loan.
• Does your home loan come with an offset account option?
• Is there a limit to how much you can offset against your home loan?
• Are there special terms around the types of transactions you can make?
• Is a redraw actually what you’re after?
• Are there any extra fees on your offset account?
What’s Loan-to-Value Ratio (LVR)?
Loan-to-value ratio (LVR) can impact how much you can borrow. Find out what it is, and how to calculate it.
What's a redraw facility?
Learn about what a redraw facility does and how you can use it to your advantage with your home loan.
Fixed vs variable interest rates: Which should I choose?
Understand the differences between fixed and variable rate home loans.
What’s Lenders Mortgage Insurance (LMI)?
Understand what Lenders Mortgage Insurance is and how it could affect your home loan.
Home Loan Interest Rates effective 11 May 2022.
1. Comparison rate calculated on a secured loan amount of $150,000 for a term of 25 years. WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees and other loan amounts might result in a different comparison rate. Fees and charges apply. Terms and conditions available upon request.
2. New apps received 30 Jun 2022, funded by 30 Sep 2022. Not available to existing Bank First owner occupied or investment home loan customers. Min loan $200k, max loan $2m, interest only not available. Premier Package annual fee of $390 will be waived for the first year and charged annually thereafter. Rate includes a 0.33% p.a. discount off the standard Premier Package variable rate for three years after which it will revert to the standard Premier Package variable rate. Not available in conjunction with any other offer. Bank First reserves the right to amend or withdraw this offer at any time.