How does a bloody offset account work?
No, Lara hasn’t just turned to finance! But it is one of the questions that we’re most commonly asked. So here's the lowdown for you....
So, let me guess: you heard a work colleague of a friend of the sister of your best mate talking at that BBQ last week about how they love their offset account on their home loan. The problem though is you weren’t 100% sure what they were talking about and didn’t want to say so.
Well, here’s the lowdown, so that you’re totally nailing it for that next BBQ….
An offset account is just a normal ol’ bank account (like a savings or transaction account); it just happens to be linked to your home loan.
The cool part is that any money of yours that’s sitting in this account reduces the interest that you pay on your loan by ‘offsetting’ against the balance of your home loan, before the interest is calculated. This normally happens every day.
It’s treated as if the money is actually sitting in the loan, effectively meaning you pay less interest on your loan; so that all of your hard-earned cash is going towards paying back the loan, rather than paying the bank interest! Awesome, right?
The little trick is: it has to be at the same bank as your loan is at (you just can’t have it at a different bank).
So for example, if you have a home loan balance of $525,000 and have $50,000 in your offset account, you’ll only pay interest on a home loan balance of $475,000. That means that every dollar in your offset account can save you money by reducing the interest that you pay; which means more of your repayment goes towards paying down the loan, helping you to repay your home loan faster, rather than going to the bank.
Potentially, an offset account can help you cut years off your home loan - and who wouldn’t want to do that?
There are a few other things to consider with an offset account, so reach out and we’ll send you a free Fact Sheet.
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