If you don’t already have one, you might like to consider getting an Offset account. It’s is an easy way for you to save money on your Home Loan, and shave years off the 30 year term. These days there are three types of Offset accounts. Whilst there are slight differences in the three types the idea is the same. Whatever money you have sitting in your offset account will mean you are not paying interest on that portion of the loan.
For an example let’s say Frank has a home loan with a balance of $250 000.00 and his interest rate is currently 3.89% that means he will be charged $810.41 (depending on the number of days in the month) in interest. Because he is on Principle and Interest loan repayments his repayment is $2180 a month and $810.41 of that is the interest with the remaining $1369.59 pays down the $250 000.00 balance (the principle)
If Frank was to open an offset account and store his ‘holiday savings’ in it, lets say $5000.00 then the new interest he is charges is $794.20. His monthly repayment is still $2180 however he is now paying less in interest so the principle amount becomes $1385.79.
This is an example to show you that although it might not sound like a lot, over 30 years that is a massive saving in interest for you, and will shave years off the life of your loan.
So now lets take a look at the three types of Offset accounts offered by different lenders;
Offset Account
This account is separate to your home loan and your other accounts. You can store money in this account to offset the interest however to access the funds you need to transfer it out of the account into one you can access. Some banks or lenders charge a fee for withdrawing and in some cases there’s a minimum withdrawl amount.
Redraw Account
The redraw is the home loan itself. Rather than transferring to a separate account you transfer to the home loan account and this will save you money on interest. As with the Offset account there can be fees to withdraw and minimum amounts depending on your bank or lender.
Transactional Offset Account
This account is only a few years old and not all Banks and Lenders offer it however it is an amazing feature if you have it available. The transactional offset account allows you to offset your everyday account, meaning you have complete access to your funds at all times however you are also saving money on interest. In some cases you are allowed multiple Transactional Offset accounts so you can set every account up to save you money.
In my personal banking, I have access to not one but unlimited Transactional offset accounts. This has allowed me to offset the kids savings against the home loan as well (rather than them earning interest of 0.5% they save us 4%)
Want to know how much you could be saving if you offset your money? Contact me today to discuss.