An offset account is a transaction account linked to your home loan. You can make deposits or withdraw from it as you would with a regular transaction account.
The big difference is that when you hold money in an offset account over a period of time, you can reduce the amount of interest charged on your home loan. The higher the balance and the longer the period, the less interest you’ll pay. And this could help you pay off your loan sooner.
Generally speaking, the offset feature is only available on variable rate home loans (although some lenders offer an offset feature on selected fixed rate home loans).
Say you have a home loan of $250,000 and $30,000 in your offset account; in this situation, you’ll only be charged interest on a loan balance of $220,000 ($250,000 – $30,000).
Because the offset account acts like an everyday account, your $30,000 is still accessible whenever you need it, even while it’s working to reduce your overall interest payments.
The advantages of an offset account essentially depend on how much money you have sitting in it and the type of offset you have.
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