A home loan offset account could help you save
thousands on your mortgage, but how does it work?
Use our calculator to determine exactly how much you could save on interest with this home loan feature.
What is an offset account?
An offset account is a bank account that is linked to your home loan. You can make deposits or withdraw from it as often as you like, however, it’s best to treat it as a savings account.
The money held in your offset account is used to reduce the interest on your home loan. The balance in this account is offset against the balance of your mortgage, so that you only pay interest on the difference.
You can still access the money in your offset account, which is one of the main advantages of this home loan feature. However, it may not benefit you if the account consistently has a low balance.
An offset account functions like a regular bank account, but is used to reduce the amount of interest payable on your home loan. The balance in this account is offset against the balance of your mortgage, so you are only charged interest on the remaining balance.
How to use this offset calculator?
You will need to manually enter the financial details of your home loan into the calculator and then review the results. The calculator will work out your monthly home loan repayments, the total loan amount, how much interest you will pay and the interest you will save. This will help you assess the difference an offset account could make to your mortgage.
What do I need to enter into this offset calculator?
To use this mortgage offset account calculator, you’ll need to input figures including:
- Loan amount – the balance that is still owed on your home loan.
- Interest rate – this is likely to change over the course of your loan, so keep in mind that this might affect the overall savings. You should input your current interest rate.
- Loan term – how many years are left on your loan.
- Repayment frequency – whether you make your mortgage repayments weekly, fortnightly or monthly could have an impact on the interest paid.
- Offset account balance – if you don’t yet have an offset account, you can use an estimate based on the amount you currently have in your savings account.
How does an offset account work?
An offset account is used to reduce the amount of interest you pay on your mortgage, which could help you pay it off sooner. The more money you keep in an offset account, the less interest you’ll pay on the loan. For example, if your home loan balance is $500,000 and you have $50,000 in your offset account, you would only pay interest on $450,000.
An offset account is a feature that is usually only available on a variable rate home loan.
How much can I save with an offset account?
The amount of money that you save with an offset account will depend on a number of factors, including:
- Your interest rate
- The amount of money you keep in your offset account
- The balance of your mortgage
- Your loan term
- How often you make deposits into or withdrawals from your offset account
However, if used appropriately, an offset account could save you thousands of dollars in interest and take years off your home loan term.
When should I use an offset calculator?
If you like the sound of an offset account but you’re not sure exactly how it works, how much you could save or whether it’s right for you, a mortgage offset calculator could help. This will allow you to factor in your personal financial circumstances and see exactly how much you could save.
The calculator can also help you determine how many years it will take you to pay off your loan if you open up an offset account.
Offset account vs redraw facilities
A redraw facility has similar features and benefits to an offset account, but also has some key differences.
An offset account is a bank account that is separate to your home loan, whereas a redraw facility is a feature attached to your home loan. The balance in your redraw account comes from additional repayments that you’ve made on your home loan, that must be made manually.
A redraw facility allows you to take back any extra repayments that you’ve made on your mortgage, but there are some restrictions associated with this. Your lender might apply a minimum or maximum redraw amount and you may only be allowed a certain number of redraws. It may also take longer to access these funds than it would if you were using an offset balance.
What you need to know
An offset account can definitely have long-term benefits, but there are also some things you may need to weigh up. These include:
- Your lender might have maintenance fees or higher rates attached to having an offset account, so you may need to find out the comparison rate.
- Offset accounts do not generate any interest.
- If you need to withdraw a large amount from your offset account, your home loan repayments will increase. You will need to factor this into your budget.
The home loan specialists at Homestar Finance can help you determine whether an offset account is right for your financial situation. The team at Homestar Finance is committed to providing personalised, one-on-one service to ensure that every customer feels comfortable with their home loan.
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Frequently Asked Questions
Does the amount I could borrow differ if I'm single or part of a couple?
Relationship status can impact your borrowing power in both negative and positive ways.
Since lenders will take your combined income and shared debts into account this may prove advantageous when assessing your financial situation. However, the converse is also true if you have multiple dependents and too many shared assets.
Does my ability to borrow differ if it's an owner occupied property or an investment property?
Generally speaking, it is slightly easier to borrow for the purposes of property investment because a lender will take potential rental income into account.
However, lenders will still assess you against your personal income and expenses because they want to ensure that you have the ability to meet mortgage repayments even if the property goes unoccupied for an extended period of time.
If I already own an investment property, will that improve my borrowing power?
Your investment property will definitely be taken into consideration by the lender when they assess your borrowing power.
Whether this improves or impedes your borrowing ability will depend on many things, like whether the property is positively or negatively geared, the property value, your equity in the property and your current loan.
The best way to check is to chat with one of our dedicated home loan specialists who can help you to break down the exact financial implications of your investment property.
Does HECS affect my borrowing power?
A HELP loan is treated the same way as any other personal loan.
Since HECS is still a liability under your name, it will be taken into account when the bank calculates your debts and liabilities against your income.
Besides my deposit, what costs do I need to budget for when buying a house?
Deposit isn’t the only upfront cash you’ll need when it comes time to buy your new home.
You’ll need enough to cover additional costs such as stamp duty, inspection fees, house insurance, moving costs, applicable bank fees, as well as legal or settlement agent fees and charges.
Our comprehensive first home buyer’s guide can help clarify any of the aforementioned costs you may be unfamiliar with and more.
Our disclaimers
1 Rates shown apply to new eligible Owner Occupieda or Investment home loansb only, loan limits may apply depending on your product (refer to the product page) and at least one applicant is on PAYG employment. For fixed rate loans, after the fixed rate term, a variable rate will apply. Rates are subject to change without notice. Existing borrowers may have different interest rates which are dependent on the rate offered to the borrower at the date when a home loan settled and any reductions or increases the lender decided to make on the existing loan over time. Accordingly, there is not one standard variable rate that applies to all Homestar home loans and existing customers can confirm their current rate(s) by logging in to internet banking or by contacting customer service. Terms, conditions, and eligibility criteria apply.
2 Comparison rates are based on a basic Homestar loan, on a $150,000 loan amount over 25 years. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.
3 Third party cost(s) incurred by service provider(s) are payable and may vary or increase depending on the service provider, nature of the service and request. Any additional cost(s) are passed on directly to the applicants(s). If there is a variation or an increase, a separate quote will be provided..
4 Disbursements may also be payable.
Other fees and charges may apply.
DISCLAIMER: Terms, conditions and eligibility criteria apply to all our loan products and features. Fees, charges and disbursements are payable. Final approval is subject to credit assessment. Information valid as at [cgv product-page-disclaimer] which is subject to change without notice. Please consider if the product is appropriate for your individual circumstances. If you need assistance or have any questions about a product or feature and its suitability, please contact our Loan Specialists.
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