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Your Guide to Offset Mortgages

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In a survey conducted by Statista in 2022, they found that 35% of mortgage holders are at risk of getting hit by high-interest rate hikes. With this said, it’s crucial now to find ways of lowering your mortgage rates to help reduce the impact on your day-to-day expenses.

As for first-time home buyers, learning about other possible mortgage options can help you save more in the long run. One such method is through offset mortgages. Find out what it is and how it can help you save more on home loan interest rates.

What is an Offset Mortgage?

An offset mortgage is a type of mortgage where it is linked to your savings account. It allows you to save on mortgage interest rates by offsetting your loan amount to the contents of your savings deposit.

It is a similar concept to a Redraw Mortgage however the extra funds in the redraw will be kept in the loan account unlike offset the extra amount is saved within the saving account. The balance inside your savings deposit will be used to offset your loaned amount which lowers your mortgage interest rates.

How Do Offset Mortgages Work?

In an Offset Mortgage, your loan will be linked to a savings account. The funds within your savings will be used to offset the mortgage you need to repay.

For example, if your loan is $300,000 from a bank. From the same bank, you also have a savings account with a balance of $70,000. In an offset mortgage, the offset from your bank will do the following calculation:

$300,000 – $70,000 (in savings) = $230,000

The result is $230,000. The bank will only charge you interest for the $230,000 not for the full $300,000 of your loan balance. 

The more funds there are in your savings account the lesser interest rate you’ll pay.

Why Do Banks Offer Offset Mortgages?

If people get charged less interest with offset mortgages why do banks offer them to customers? Banks also benefit from the funds in saving accounts for offset. This will give the bank the opportunity to lend money to other clients and will earn further interest charges.

Is the Savings Account Still Usable After Linking for Offset?

Yes, you can still access your funds within your account just like any regular savings. You can deposit and withdraw funds as usual. The only difference is the funds you have inside your savings account will not earn any interest.

What are the Benefits of an Offset Mortgage?

There are essentially two benefits you will get with an offset mortgage, these are:

     

      • Full access to your funds in the savings account

      • Interest rate charged on the lower amount for your loan depending on the amount within offset.

    How Many Accounts Can You Link To An Offset Mortgage?

    You can link up to as many accounts as your lender allows you to, so lenders will allow up to 10 Offset accounts. Often a family with multiple dependents can have one account for each depending to save money for future education and can be used as an offset from the family mortgage to help pay off a mortgage faster.

    What are the Different Types of Offset Loans Available?

    There are two types of offset mortgages available for you, these are:

       

        • 100% Offset – also known as full offset. This type uses every money inside your linked deposit account to offset your home loan.

        • Partial Offset – this type only uses a partial portion of the linked account to offset the mortgage.

      Which Banks Offer The Best Offset Mortgage Deals?

         

          • Speak to the Excellence Finance team they will provide you with product specs, fees & charges

        In Summary

        Offset accounts will allow you to save on interest charged on your home loan. For careful savers, it not only allows them to save more on interest but also helps pay off the loan faster.

        Not sure if an offset mortgage is the best option for your situation? Call one of our licensed mortgage brokers at (02) 9609 4655 today to get FREE expert advice. Or, send us an email of your inquiry, we at Excellence Finance would be more than happy to help!

        You can also try our Offset Mortgage Calculator to get an insight on your possible savings!

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