Home Loan Offset Calculator
Mortgage repayments are expensive. Taking on a home loan is undoubtedly the biggest financial commitment you will make in your life. So, why pay more interest than you need to?
Using an offset account will reduce the amount of interest you pay whilst ensuring that your cash is fully accessible. You will save a considerable sum over the lifetime of your mortgage, saving thousands of dollars!
What Is an Offset Account?
An offset account is a standard transaction or savings account that is linked to your home loan account. Despite offering additional benefits to your home loan account, the account will still act as a transaction or savings account.
So, if yours is a transaction account, you can still have your salary paid into that account. You can withdraw cash from an ATM and spend your money in any way you wish. However, whilst there is money in the account, you are still saving interest on your home loan.
So how does it save you money? The offset balance counts toward your home loan to reduce interest. Therefore, you will only pay interest on your home loan balance after the balance in it has been deducted.
You are still free to use the cash in your offset account. Although, a reduced balance in it will result in saving less money in interest on your home loan.
How Does an Offset Account Work?
An offset account works to save you money. It is an attractive feature of some home loans, although not all home loans. Allowing a mortgage broker to find you a great home loan deal with the feature is the best way to find one of these rare gems!
When you finalise your home loan deal and secure the account, get ready for some superb savings! You can use it as a long-term savings pot that you continually add to. The more cash you save in the account, the higher the interest savings on your home loan!
Additionally, the funds held in it do not attract any withholding tax, making it a tax-efficient option compared to other investment accounts.
Or, you can use the account as an everyday transaction account. Pay your salary into it every month and use the account for everyday transactions.
Your monthly home loan repayments are made up of principal repayment and interest repayment. The principal repayment amount is the money you have directly borrowed from the lender to buy your new home. The interest amount is the interest your lender is charging you in return for borrowing the principal amount.
When interest is calculated on your home loan balance, the offset balance is deducted first. So, if you owe $400,000 on your home loan and have $80,000 in the account, you will only be charged interest on $320,000. You could save a vast amount of money over the lifespan of your mortgage!
If interest is calculated daily, you would save more money on the day that your salary has been paid into the offset account. Each daily interest calculation would vary the interest saved, before being totalled at the end of the month.
Is an Offset Account Worth It?
An offset account is worth it, as you can save money on the interest you pay without committing that money to your home loan. You are not actually paying towards your home loan amount to reduce the money borrowed. Therefore, the money in it is still your money to spend or save.
This home loan feature sounds too good to be true! So, what are the overall pros and cons of using an offset account against your home loan?
How Much Can I Save Using an Offset Account?
How much you can save using an offset account will depend on the terms of your home loan and the particular feature.
Let’s say your loan amount is $400,000 and you have a 3% interest rate and a 30-year loan term. You pay your home loan repayments monthly and you have placed $60,000 into an offset account. How much cash could you save?
Based on these figures, you will save $1,686.42 in interest per month, amounting to $73,489.11 over the mortgage lifespan. That truly is substantial savings! You will additionally shave 3 years and 9 months of the mortgage term, ensuring that you pay your home loan faster!
Adding money to your offset balance each month will increase its balance and save you more cash. For example, adding an extra $500 to it each month will increase the interest saved to $116,365. The reduction in mortgage time will also increase to 5 years and 9 months.
Reduce the interest payable each month.
Some lenders may charge a fee to use this facility.
Always have access to your money.
This is not a common feature of all home loan packages.
Encourages you to save more cash.
Could receive tax benefits.
Why Should I Use a Home Loan Offset Calculator?
Odin Mortgage’s home loan offset calculator is the perfect tool to discover the true benefits of this mortgage feature! You can find out exactly how much you will save with varying offset account balances against your home loan balance. Use this tool when considering a home loan deal to buy a new home in Australia, assessing all available options.
To use the home loan offset calculator by Odin Mortgage, simply enter your loan amount, interest rate, loan term and repayment frequency. Then add the offset balance that you would consider using.
The calculator will inform you immediately of the interest that you will save monthly and throughout the mortgage. It will also state how many years and months you will save on your mortgage term.
Using Odin Mortgage’s home loan offset calculator is easy to do and helps you to navigate the offset account feature. Chop and change the balance inside the home loan offset calculator to see what savings you can make with higher balances!
Are There Different Types of Offset Accounts?
There are different offsetting accounts that you need to be aware of, namely the partial and the full offset account.
The full one is sometimes called the 100% offset account and will offset the whole balance against your home loan. However, the partial one will only offset a percentage of the balance.
So, let’s say your home loan balance is $400,000 and your offset balance is $120,000. With a full account, you will only pay interest on $280,000. However, if your partial account offsets 50% of the balance, you will pay interest on $340,000.
Odin Mortgage’s broker experts will ensure you find the best value offsetting account for your home loan.
Is an Offset Account Different From a Redraw Facility?
An offset account is different to a redraw facility, mainly in that they are much more convenient!
An offsetting account and a redraw facility share similarities, and also some differences! Firstly, both are home loan features that aim to save you money in one way or another. They are both positive home loan features that are not too common and may require an experienced mortgage broker’s assistance.
A redraw facility allows you to withdraw overpayments that you have made to your principal payments. So, let’s say that your home loan repayment amount is $2,000 per month and you pay an additional $1,000 per month. Those extra $1,000 payments will total $12,000 per year, rising to a substantial amount over the loan term.
A redraw facility will allow you access to these extra repayments, enabling you to withdraw the extra cash. Although, lenders may impose maximum amounts that can be withdrawn over a specific time period. In addition, you could be charged fees for using a redraw facility.
In contrast, an offset account is much more convenient and you have full access to the money in your offset balance. You can withdraw cash from an ATM or pay a bill as and when you need to!
Request a Call From Odin Mortgage
Odin Mortgage are expert brokers, specialising in Aussie mortgages for Australian Expats and foreign nationals overseas.
We can help you secure a new home loan or acquire a refinance package suited to your financial situation. We will explain loan amounts and lending criteria, arming you with the tools you need!
Odin Mortgage is an Australian Credit Licence holding brokerage, so you know you can trust us! Find out more about how Odin Mortgage can help you and the questions you need to ask a mortgage broker today! You will find a vast array of knowledgeable home loan articles on our website for you to digest at your leisure.
Contact Odin Mortgage today and request a callback!
Frequently Asked Questions
With a home loan linked to an offset account, less interest is paid each month. How much you could save depends on the offset balance and the loan interest, in addition to specific fees and charges.
Although in most cases, it’s a beneficial financial product to be added to home loan products. Interest paid is reduced because of the offset balance against home loan interest.
Home loan interest rates will vary according to your lender. Seek independent advice from Odin Mortgage to discuss credit interest, comparison rate facts, and anything else to take into account. Odin Mortgage has a wide range of the latest home loan interest rates available for you to consider!
A home loan calculator compares varying scenarios so you can determine which course of action to take. Odin Mortgage offers a wide range of home loan calculators so you can assess your borrowing power, stamp duty totals, and repayment figures.
Find your credit interest and credit criteria for your next home loan purchase today with Odin Mortgage!