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Buying a home is an exciting milestone, but choosing a mortgage can feel like a big responsibility. However, if you’re looking to shave years and thousands of dollars off your home loan, you might want to consider a mortgage offset account.
A mortgage offset account is usually a transaction account that is linked to your home loan account. You may contribute funds to the mortgage offset account at any time and the balance of this account is used to calculate how much interest is payable on your home loan.
This means you pay less interest on your home loan.
Over time, these savings can really add up and also reduce the time it takes to pay off your loan.
For example, if you have a mortgage of $800,000 and have $50,000 in your (full) offset account, you’ll only pay interest on a home loan balance of $750,000. This would save you over $62,000 on a 30-year P& I loan with a 4% interest rate.
And while your money is working hard to reduce the interest you pay, your offset account will also be every bit as accessible as an everyday transaction account.
If you are able to make additional or lump sum repayments on your home loan, an offset account can give you the benefits of interest reduction while ensuring your funds are still accessible.
Because home loan interest is calculated daily, if your offset account offers you 100% offset, every single cent in your offset account can reduce your home loan interest, every single day.
Not all offset accounts are the same, so it pays to check the details. Depending on the type of loan you choose, you might want to consider a full or partial offset. A full offset means that 100% of the funds in your offset account will be deducted from what you owe on your home loan before interest is calculated.
A partial offset gives you a reduced interest rate on the part of your home loan equal to the balance of your offset account.
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