Compare home loans with offset accounts
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About home loans with offset accounts
A home loan offset account can help you put your money to work for you, helping to pay down the balance of your mortgage sooner while your money is available for everyday banking. Here’s how it works.
What is a home loan offset account?
A home loan offset account is a bank account that’s linked to your home loan. A key difference between this and other kinds of bank accounts is that, where a savings account might earn interest on the funds you have deposited, an offset account will instead reduce the amount of interest you pay on your mortgage. Generally speaking, offset accounts are linked to variable rate home loans, but some providers may offer them with a fixed rate loan.
How does a home loan offset account work?
When it comes to depositing funds, a home loan offset account works in much the same way as most other bank accounts – you can deposit money into the account yourself, or even have your salary paid into it. The money will then be available to you for everyday banking, so your offset account can be used as a transaction account, typically with a card attached.
Once money is deposited into your offset account, however, it will not earn interest. Instead, the balance of the account will be deducted or ‘offset’ from the remaining balance of your home loan when your monthly interest is calculated. This means that the money you have in your offset account, the less interest you’ll pay on your home loan.
To understand how this works, consider this example: Say you have $700,000 owing on the balance of your home loan, and $400,000 deposited in your home loan offset account. That $400,000 will be ‘offset’, meaning that you’ll only pay interest on the $300,000 difference between what you have deposited and what you owe on your home loan.
This means that you can reduce your interest repayments month by month, and as the balance of your home loan shrinks, the less you’ll pay in monthly interest. The money in your offset can be used to reduce your interest repayments in this way, but will still be available for you to draw on for everyday banking if you need it.
Frequently Asked Questions about Home Loans with Offset Accounts
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About the authors
Alasdair Duncan, Senior Finance Journalist
Joshua Sale, Group Manager, Research & Ratings
As Canstar’s Ratings Manager, Josh Sale is responsible for the methodology and delivery of Canstar’s Home Loans Star Ratings and Awards and the Home Loan Refinance Awards. With tertiary qualifications in economics and finance, Josh has worked behind the scenes for the last five years to develop Star Ratings and Awards that help connect consumers with the right home loan for them.
Josh is passionate about helping consumers get hands-on with their home loans, always reminding home buyers that finding the right loan can be as important for your finances as negotiating a fair property purchase price. Josh has been interviewed by media outlets such as the Australian Financial Review, news.com.au and Money Magazine, discussing topics including home loan equity and wider finance trends.
When it comes to Josh’s own property journey, the home loans expert once bought two houses in the same transaction when he ensured the cubby house his daughter loved was listed on the purchase contract for his new home.
You can follow Josh on LinkedIn, and Canstar on Twitter and Facebook.
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This advice is general and has not taken into account your objectives, financial situation or needs. Consider whether this advice is right for you.