• Articles, blogs and videos to help you with your home loan decision

  • 20 April 2015

    What is an offset account?

    Have you recently purchased a property? Are you looking for ways to save on your home loan? If you want to decrease the amount of interest you pay on your home loan each month and reduce the life of Sold 300x200your loan, you should seriously consider using an offset account.

    What is it? 

    An offset account is attached to your home loan and works just like a regular bank account, as you can deposit your salary into it and withdraw money for everyday purchases using a debit card that you will receive from your financial provider.

    As the name suggests, an offset account is offset against your home loan balance, reducing the amount you pay interest on. Let’s give you a scenario. Say you have a $400,000 home loan balance and $50,000 in a 100% offset account, in this instance you would only pay interest on $350,000.

    Many home owners opt for an offset account over a savings account, as interest rates attached to home loans are generally higher with most sitting above 5%, compared to savings accounts generally sitting below 4%.

    What home loans offer an offset account? 

    Variable rate loans provide more flexible options, such as extra or lump sum repayments, a redraw facility and an offset account. You may have to pay a higher interest rate for these options, however over the life of the loan you could save yourself big bucks. But it’s important to do your maths, to ensure an offset account is worth it and right for your financial situation.

    By comparison, whilst fixed rate home loans offer the security of knowing how much your repayments will be, they generally don’t offer the option of an offset account. However, you could decide to split your loan by fixing a portion of the loan amount and leaving the remainder variable, as some split loans still provide the option of offsetting the variable amount.

    Who’s an offset account good for? 

    If you can’t afford to make extra or lump sum repayments, an offset account is a great way of reducing the interest you pay, as the amount in your account is offset against the home loan balance. Even if you need to dip into the money to pay for bills and everyday expenses, you will still be able to reduce the interest you pay when your salary is first deposited into the account fortnightly or monthly.

    So there you have it, an offset account could potentially save you thousands of dollars in interest and reduce the life of your loan. Ready to find out more about offset accounts? Visit RAMS’ 100% offset account hub to see flexible featured home loans available now.