Mortgage Offset Accounts: The Pros and Cons

An offset account is a type of bank account linked to a loan. Any money that is placed into the ‘savings account’ then offsets the interest repayments owed to your mortgage. 

In a very simplified example, if you have a $500,000 mortgage, and held $50,000 in your offset account for the term of the loan, you will only pay interest on $450,000 (being the difference between the loan amount of $500,000 and the $50,000 in the offset account).

This tends to be a desirable option to those who are savvy savers, as it allows them to have access to emergency funds if required without redrawing from their home loan. 

We have put together some pros and cons of having an offset account, to see if this may be suitable for you: 

Pros

Saving on interest 

These accounts can save you a significant amount of interest if you use them correctly. If you can place savings into the account and keep them there, the interest you owe will reduce. This means that you pay more of the principal (loan amount) back with each repayment, saving you money over the years.

Reduce the length of your home loan

Less interest equals less time spent paying off your home loan! The longer you leave savings in the account, the more beneficial it is for your repayments. 

Access to your savings

By using an offset account, you still hold the money and have full control over how it is spent. Once you pay this money into your mortgage, access to them is not automatic. However, with an offset account, you have savings for a rainy day if they were suddenly required. 

Cons

Not every offset account is 100 per cent 

Not all offset accounts offer interest reductions on 100 per cent of the savings you hold in the account. This can mean you need to contribute even more savings into the account to see the full benefit of using it. 

Maintaining your balance 

You will need to maintain a good savings balance in the account to reap the benefits, which means looking at the money placed into your offset as emergency only. This can be frustrating for some people who may want to use this money for something like a holiday or a new car. 

Higher interest rates

Home loans with offset accounts tend to have marginally higher interest rates. This means you may be paying more in the long run. Thus, it's important to do your research and speak to someone who can help you make the best decision. 

For more information, contact us today and we can point you in the right direction. 


IMPORTANT NOTE: This information is general advice only and does not take into account your personal circumstances, goals and objectives. Therefore, you should consider its appropriateness for your circumstances before acting on this information.

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