An Offset Mortgage is a facility that links your mortgage to your savings and everyday accounts. The balances in these accounts are used to offset the amount of interest you’ll pay on your offset mortgage.
Interest is calculated daily, so the more funds you keep in your savings and everyday accounts, the more interest you’ll save on your mortgage. This will potentially help you pay off your mortgage faster.
For example, if you have a $400,000 offset mortgage and $20,000 in your savings account that is linked to your Offset mortgage, you would only pay interest on $380,000. This can lead to interest savings over time and potentially shorten your loan term.
Benefits of an Offset Mortgage
- You’ll potentially pay less in interest and be able to pay off your mortgage faster
- Generally these facilities are on a variable interest rate which can change as the market does
- Flexibility to make extra payments to this facility whenever you like without penalties
- You can increase your regular mortgage repayments without incurring a fee
- You’ll have the ability to link multiple accounts to your offset mortgage
- You can potentially link not only your own accounts, but your children’s and even your parents accounts if they are with the same bank
- Your savings accounts remain accessible even if they are linked to an offset mortgage
Disadvantages of an Offset Mortgage
The linked savings accounts will NOT earn any credit interest when they offset a mortgage, however, usually interest charged on a mortgage is typically higher than the interest you would earn on a savings account. So this tends to make the offset worthwhile.
Making an Offset Mortgage work for you
If your main priorities are to reduce the amount of interest you’re paying on your mortgage and to accelerate repaying off your mortgage, then an Offset facility could potentially be suitable.
At this stage, there are only three banks that currently offer an Offset mortgage product, and they all have slightly different features. If you’re wanting to look at ways to repay your mortgage faster, we recommend that you seek help from one of our experienced Mortgage Advisers.
Want to find out more?
If you’re considering an Offset Mortgage as part of your home loan, we’re always available to chat. Get in touch today.
