What if my offset savings are equal to my loan amount?
If you save enough money, over many years, your offset savings could eventually equal the amount that you owe on your home loan. This is obviously a great position to be in! But you have to decide what to do next.
You've essentially paid your mortgage off and if you want to end the home loan, you can move the offset savings over to the loan and then discharge the mortgage. Now you're debt-free.
However, all of your offset savings have now been spent. If this is the bulk of your savings, you will suddenly be very low on cash, which leaves you financially vulnerable if an emergency or unexpected expense arises.
You could decide to repay most of the loan, leaving some savings accessible while you repay the final loan amount. Or you could keep going with all of your savings off-setting your loan. This means that every mortgage repayment you make will just be paying down the loan's principal, and you won't be paying any interest at all.
If you're not sure what the best option is for you, consider speaking to an experienced mortgage broker.
Can your deposit sit in an offset account? For instance if I were to purchase a $650K property using a loan of $400K plus savings of $250k as deposit, could that $250k deposit money sit in an offset account thus reducing the interest chargeable amount to $150k?
Hello Kat,
Thank you for your inquiry.
Unfortunately, it is not as an offset account is a transaction account that can be offered as part of your home loan package and can be withdrawn anytime and not locked in. The initial deposit you have paid for the property is already on the lender’s books.
If you wish to have an offset account connected to your mortgage, we advise that you speak to your lender of choice or to a mortgage broker to see your options. They can lay down the numbers you need to have a clearer view.
Hope this helps.
Cheers,
Jonathan
Hi,
Currently I have mortgage that is splitted to a variable and a fixed loan. The variable has an offset account. My question is that what are the benefits of using an offset instead of putting the savings into the variable account.
Example, I have 20K savings, and -40K in the variable account. If I put 20K into the variable account, the balance is -20K, so the effectively, the interest rate paid is the same as using the offset account.
Could you please help?
Thanks.
Hi Danny,
Thank you for contacting finder. We are a comparison website and general information service, we’re more than happy to offer general advice.
Offset accounts are commonly associated with variable rate home loans, but the competitive nature of the home loan market means this feature is available with some fixed rate home loans. These home loans can provide the stability of a fixed interest rate and reduce the amount of interest you pay at the same time. While this repayment method is suitable for borrowers who have just entered the market, such as first home buyers, using this home loan as a hedging strategy may not be as effective. Variable interest rates fluctuate according to economic conditions and unless you’re an economic expert, predicting when interest rates fall or rise is no easy task. Either way you’ll still have the benefit of the offset account to reduce your principal. Now, offset accounts are considered to be deposit products. Therefore, they are considered investment accounts. In order to determine whether an offset account is better for you or not, you should not take any information provided within this article as financial advice. Rather, you should discuss your situation with a licensed financial advisor and work out whether an offset account might be right for your own personal financial situation or not.
I hope this helps.
Cheers,
Danielle
What happens if you have more money into your offset account than you have owing on your mortgage?
Is there an upper limit to the amount of money you can have in an offset account?
Hi Di,
Thank you for your question.
If your offset account balance is bigger than your outstanding mortgage, your loan payments will be applied fully to the principal. This is because your mortgage will not accrue interest at this point. Kindly note that the balance of this offset account doesn’t earn interest.
As for the balance limit, it would be best to check this with the bank or lender as they might have set a maximum limit.
I hope this has helped.
Best regards,
Liezl
If you are on interest only loan and have 100% offset attached. how the repayments would be affected. As an example you have a loan of $400,000 for years @ 4% with repayment of 1333.33. if you have another 20,000. How the repayments would work. From the above example, repayments don`t change, then how the 20K offset balance help?
Hi Raj,
Thank you for your question and for contacting Finder!
Usually, with the interest-only offset, the balance in your offset savings account is offset against the amount owing on your home loan. For instance, you owed $400,000 on your mortgage and at the same time you had a $20,000 balance in your linked offset savings account, you would only be required to pay interest on an amount of $380,000.
Please feel free to read our through our Interest-only offset accounts for more details.
Hope this has answered your question.
Cheers,
May
How does a visa card off set account work.
Hi Steve,
Thank you for your comment on finder.com.au, a financial comparison website.
The Visa debit-card is simply the type of card you may be able to attach to your offset account to allow you access to the funds you have put in there if you need it, it would still function as your typical offset account in terms of any funds you have deposited in this account working to help save you interest on your home loan.
Regards
Jodie