Put simply, a home loan offset account is a transaction account linked to your home loan. The money in the account is counted towards the total amount owing on your loan, which can help reduce the interest you pay and shorten the life of your loan. In this guide, we will explain how offset home loans work and how you can use offset home loan offers with Macquarie to save money on your home loan.
How Does An Offset Home Loan Work?
As mentioned above, an offset account involves using the money in the account to offset the amount you owe on your loan, which reduces the amount of interest you pay. For example, if you have a $300,000 mortgage and $20,000 in your offset account, you will only be charged interest on $280,000.
The main benefit of an offset account is that it can help you save money on interest and pay off your loan faster. Offset accounts can also be used to manage your cash flow by providing access to funds when you need them - for example, if you have a $300,000 mortgage and an offset account with a balance of $20,000, you can use the funds in the account to make extra payments towards your mortgage or make repairs to your property without incurring any penalties.
What Are The Drawbacks Of An Offset Account?
Offset accounts have a few drawbacks that potential borrowers should be aware of before deciding if they are right for them. Firstly, offset accounts typically have lower interest rates than other savings accounts because the money in the account is used to reduce the amount of interest paid on a home loan. As a result, savers may not earn as much interest on their savings as they would with a traditional savings account.
Second, most offset accounts require a minimum balance to avoid fees. For example, many banks require a minimum balance of $1000 to avoid fees on an offset account - this means that borrowers must have at least this much money in their account at all times or they will be charged fees.
Finally, some lenders limit how much money can be deposited into an offset account each month. For instance, Westpac limits deposits into its Freedom Offset Account to $5000 per month (excluding salary). Borrowers who are looking to use an offset account to manage their cash flow should take this into consideration when shopping for a home loan.
Do Your Research Before Committing To An Offset Home Loan
An offset home loan can be a great way to save money on interest and pay off your loan faster. However, there are some drawbacks that potential borrowers should be aware of before deciding if an offset home loan is right for them. By staying informed on all the terms and conditions, you can make the right decision for your individual needs – good luck!
