Offset accounts offer a convenient and flexible way to save money on interest and pay off your home loan faster. Whether you’re thinking about refinancing your home loan or simply wondering how to better manage your finances, opening multiple offset accounts linked to your home loan could be the solution.
How does having multiple offset accounts work?
A traditional offset account arrangement consists of a separate transaction account linked to your home loan. As the interest charged on your home loan is calculated using your mortgage balance, less your offset account balance, keeping your spare cash in an offset account can significantly reduce the interest payable over the life of your loan, allowing you to pay off your loan sooner.
By incorporating multiple offset accounts into your home loan product, you can split your funds into different offset accounts which are all linked to the same home loan. The combined balance of these different accounts will be used to offset the balance of your home loan balance.
Benefits of having multiple offset accounts
Easy financial goal tracking
When you set up multiple offset accounts, you can clearly label each transaction account with its own goal or financial purpose. Some typical account names could be:
- Emergency fund
- Holiday savings
- Household bills
Being able to separate your funds into different ‘buckets’ can be helpful motivation for reaching your saving goals. Keeping funds separate can also help to prevent accidental overspending. Due to this, multiple offset accounts are an attractive option for homeowners seeking efficient financial management.
Fast access to funds
One key benefit of offset transaction accounts is the ability to access your funds quickly. Unlike redraw facilities where accessing your money can take days, an offset account allows you to withdraw your money the moment you need it, making it ideal for regular living expenses. Using multiple offset accounts is an excellent way to reduce the interest payable on your home loan without sacrificing cash flow.
Consolidated interest benefits
When your home loan structure includes multiple offset accounts, you don’t sacrifice the offset benefits received with a more traditional, single offset account. The balance of all of the offset accounts linked to a specific home loan account are combined, in order to offset your home loan balance.
For example, if you have the following account balances:
- Home loan: $500,000
- Offset account #1: $20,000
- Offset account #2: $10,000
Your home loan interest will be calculated based on a balance of $470,000
($500,000 – $20,000 – $10,000)
In this example, the homeowner would save more than $100,000 in interest, and shave three years off the life of their mortgage*.
*Based on a 5.5% interest rate and a 30 year loan term.
The Homestar Finance Offset Calculator can provide you with an indication of how much you could save on your home loan interest by using an offset account.
Drawbacks of having multiple offset accounts
Lower account balances = lower benefits
The main benefit of an offset account is that it offsets the balance of your home loan. The higher your offset account balances are, the higher your interest savings will be. If you have multiple offset accounts with low balances, you may not experience significant interest savings. This is especially true if there are fees or charges associated with your offset accounts. If you are paying fees on three offset accounts with low balances, downsizing to one offset account may be a better option.
At Homestar Finance you can have multiple fee-free offset accounts linked to your mortgage. The Homestar Loan Specialists will be able to guide you on what is best for your circumstances and help ensure when your mortgage loan settles you have access to your offset accounts straight away.
You may be tempted to withdraw funds
Having immediate access to the funds in your offset accounts may increase the risk of impulse spending. While being able to easily withdraw funds for their intended purpose or a financial emergency can be very helpful, you should also consider your personal spending habits (or that of your other account holder in the case of joint borrowers).
Some homeowners may prefer making extra mortgage repayments and using a redraw facility to support their personal saving goals.
There may be restrictions for different lenders
Depending on the lender you choose to refinance with, you may find some unexpected restrictions when setting up multiple offset accounts.
Offset accounts are typically only available on variable rate home loans, which limits your ability to take advantage of low fixed rate loans when they are on offer. If a lender does offer an offset account on a fixed rate home loan, it may have monetary restrictions around the amount you can hold within your offset account.
Additionally, some lenders may also cap the number of offset accounts you can link to one home loan, thereby limiting the number of saving goals you can create.
Does having multiple offset accounts incur additional fees & charges?
There may be fees and charges applicable to offset account products, so it’s important to understand the terms and conditions of any product you’re applying for. Some banks and lenders will have set fees and charges per offset account. This means that if you’re planning to use four offset accounts to track your savings goals, you could potentially end up paying four sets of fees. Paying ‘per-account’ fees can add up quickly and negatively impact your financial goals.
Some lenders such as Homestar Finance understand the personal financial flexibility multiple offset accounts can provide, and they offer multiple offset accounts without any ongoing or monthly fees.
Do all banks & lenders offer multiple offset accounts?
Not all banks and lenders offer multiple offset accounts as an option. Of those that do, some place restrictions on the number of offset accounts you can link to your home loan, and they may charge higher fees than other lenders.
Is having multiple offset accounts right for your situation?
Every homeowners personal circumstances and financial goals are unique. While multiple offset accounts can be a valuable tool for many people, it’s important to consider whether any product is right for your financial situation before refinancing your mortgage. Contact the friendly team at Homestar Finance today to receive personalised, professional advice on whether this product might be right for you.
Summary
Multiple offset accounts can be a valuable part of your mortgage strategy. Opening multiple offset accounts can allow you to gain better visibility and control of your financial goals, while providing significant interest savings on your home loan.
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