Mar 26, 2017  | Tags: mortgage, mortgage broker, offset account, loan, home loan, loan interest, mortgage offset account, financial adviser, Adelaide

When most home buyers think about borrowing, they're thinking in terms of what they can afford now. They aren't really contemplating what their bank balance may look like 10 or 20 years down the road.

But some borrowers do think ahead and logically plan to pay off their mortgage before its term so they pay less interest on their loan.

What Is A Mortgage Offset Account?

A mortgage offset account is a fully featured transaction bank account that's linked to your home loan. With features such as ATM access or direct debit, it’s not unlike your everyday banking account. The only difference is that any money sitting in the offset account reduces the amount that the bank calculates interest payments against.

Yep, that’s right, the loan principal is reduced for the purposes of calculating interest by the amount in the offset account, and this is done without increasing the repayment amount.

So How Does An Offset Account Work?

Let's take a look at a quick example to illustrate the idea. If you had a principal of $450,000 owing on your home loan and then also had $10,000 in a linked 100% offset account, the bank would only charge you interest on $440,000.

Essentially, the money you save on interest goes straight into paying off your loan principal. As a result, you would pay less in interest over the life of the loan.

Don’t forget that the banks calculate interest on mortgages daily. So if your salary gets paid into your offset account, then the loan principal is in effect reduced by that amount as soon as it hits your account. You could also make use of interest-free days on your credit card to pay for goods so you can keep the cash in your offset account working for you.

How A Mortgage Broker Can Help

At Calder Finance Broking, our lending experts help people apply for and secure the best value home loans every day. We'll lay out on the table for you a whole range of products with different loan features to compare. An offset account could bolster your financial position.

What Next?

One phone call is all it takes to get started. Reach us on 08 8373 3333 or get in touch here.

Written and Supplied by Cliff O’Connell of Calder Finance Broking, for more information please visit the Calder Finance website. Please note that Calder Finance Broking Pty Ltd is a Corporate Credit Representative of BLSSA Pty Ltd ABN 69 117 651 760 ACL 391237.