Welcome to our 100% offset loan information page: This page is designed to assist you in understanding the basics of this type of loan and to give you an understanding of some of the features and downsides.
About Our services:
- Our brokers are experts in obtaining home loan approvals and specifically trained in loan structuring and credit policy, ensuring the best possible outcome for your needs.
- We provide an Australia wide service, at no cost to you.The lenders pay us a commission for the introduction of your business.
- Our website is designed to help borrowers understand the differences between loan types and the importance of having a mortgage broker to assist you in finding the right lender.
About 100% offset account Home Loans:
What is a 100% offset Account?
An Off Set account is a transaction account that has been designed specifically for one purpose, and that is to be linked to your home or investment loan and allows you to offset spare cash funds against the loan. The cash balance in your offset transaction account is offset against your outstanding loan balance, reducing the interest payable on the home loan and therefore saving you money.
How does an offset account work?
Let’s assume that a client has a loan of $300,000 and are paying 6% interest on the loan. If the client also had an offset account and maintained a cash balance in the account of $20,000 for the entire period of their loan term, they would save tens of thousands of dollars in interest.
This is because the loan is “offset” against the funds in the offset account. Effectively, you will be charged interest on a total combined loan balance of $280,000. This can take years off a home loan term and if we use the loan scenario below, you can see that this offset arrangement is now also saving 3 years off the example loan term below.
Let’s show you how this actually works:
- A $300,000 home loan at 6% on a principal and interest loan will have a yearly repayment amount payable of $21,576.
- Each year taken off the home loan is a saving of $21,576.
- If the loan term was reduced by 3 years, then the loan repayments saved will be 3 times $21,576, meaning you have saved $64,728.
- This is in addition to compound interest saved across the loan term by having your cash funds sitting in the offset account, also saving interest. Don’t forget, your loan is charged interest daily, meaning that you are charged on the outstanding balances each day.
You can see by this example that there can be substantial savings to be made in using an offset account.
There are also further savings to be made here because this is just explaining about how the offset account works. Obviously different lenders have different offset accounts and on top of that, different lenders will have different accounts that will work in conjunction with the offset account selected. A home loan needs to be applied for that allows an offset account as an added feature. Most loans that each lender has available would not automatically entitle you to an offset account.
- Our job is to sort out which lender is offering the best loan and offset account combination for your individual needs. Please remember that this is not a sales pitch as we do not charge for what we do.
Should You Choose a 100% offset Account?
This is a very tricky question.
There are a whole list of questions that we would be asking you before we would even consider a 100% offset account as part of a recommendation for you. In broad terms, the questions will relate areas such as: can you maintain a budget? How good is your ability to save money? How disciplined are you when you have funds in your savings account? Is the property going to be owner occupied? Is the property for investment purposes? Is the loan going to be tax-deductible? What features do you need in your loan? What kind of loan is really going to benefit you the most, what are your plans over the next few years? And the list goes on depending on your individual circumstances.
Until we assess what your needs are and ask all of the relevant questions associated with why you are applying for finance and know your circumstances better, it is hard to say if an offset account will be appropriate for you.
You will need to discuss your scenario in detail with your mortgage broker, so that the broker will be able to investigate not only your loan options, but also your loan structure, to find the most suitable way forward.
What benefits are there in having a 100% offset account?
Most lenders have offset accounts available that vary in different ways. Please read through some of the Pros and Cons associated with offset accounts.
The benefits or features listed below will possibly are not offered all in one facility and we are listing features and benefits here only for the purposes of having you understand some of the products that are available across all of our lenders.
The pros:
- The main benefit is that you can offset your savings against your mortgage. Your everyday savings are working harder at saving you interest whilst ever there are funds in the offset account.
- If you’re offset account is working in conjunction with a tax deductible investment loan then there may be other benefits to you. There are ways of utilizing the offset account and the deposit/offset funds for future redraw that can often minimize or eliminate deduct-ability issues. This is an area that needs to be discussed with your accountant and your accountant can then discuss options with us. As you are aware, we are mortgage brokers and not accountants and you will be required to ask your accountant if the recommendation of an offset account would be suitable for your taxation needs.
- You can deposit any cash lump sums into your offset account. Depositing a lump sum is definitely going to save you a lot more money and you can add further savings to this account on a regular basis, therefore increasing the interest savings you are making.
- Some lenders will allow a partial offset against some fixed rate loans.
- You have access to your money in your offset account at any time, much like any savings account.
- Some lenders have no minimum balance in order for the offset to apply, and some lenders will require you to have a certain amount of minimum funds in your account before the offset feature starts working.
- Some offset accounts are offered with no account keeping fees. This depends on the loan that you apply for and also depends on if you have opted for a package loan.
- You will have full access to most of the standard banking facilities with your offset account. Features such as Internet banking, phone banking, ATM access, cheque-book, BPay, direct salary credit, redraw and Eftpos will be available.
What do you need to be careful of regarding offset accounts?
There is not a lot of downsides in having an offset account. The main thing to worry about with these accounts, is that if you have an offset account and if it is not set up with the best possible lender, then you could compromise savings.
As you can see by the example above, savings are made over time, and anything that is detrimental to the effectiveness of your offset account will mean that, over time, you stand to lose a lot of money and will pay off your loan over a longer period.
The cons:
- Selecting a loan that has an offset account attached may not necessarily be the best option for you. It could be possible that a different loan could be offered to you without an offset account attached, at a much cheaper rate. Be careful what you ask for, or ask your broker to tell you your options.
- Setting up an offset account and loan combination with the wrong lender. Quite often we find clients have set these loans up with any old bank that would just lend them the money. That is not how you obtain the best loan on the market.
- Having an offset account that is not being used properly. Not understanding and using all of the features attached to the offset account correctly will cost you money. Understanding the loan is extremely important.
- Only putting some of your savings (or even worse, none of your savings) into the offset account rather than all of your savings, will cost you money. You may be paying unnecessary account keeping fees.
- Using different accounts for your savings, while you’re offset account sits empty, could also mean that you are paying unnecessary account keeping fees and losing offset benefits.
- Depositing into an investment loan instead of your offset facility and then redrawing those funds from the loan may also cost you money because you have now possibly eliminated a portion of your tax deductions.
- Your Mortgage Broker will be able to assist you with any further questions that you may have.
How can I apply?
These are your simple steps to apply for a loan.
- Contact us on the numbers above to speak to a mortgage broker, or complete our online enquiry form.
- You will speak with a broker who will take into account your needs by discussing not only your requirements, but also any concerns you have, and offer you some possible strategies and ideas that you may not have thought about.
- Once we know what you require, we will draft and email you a proposal– this will usually consist of a few options that are easy to understand.
- Once you have had a chance to look at what options are available, you can contact your broker or the broker will call you, to discuss the proposal.
- You can then decide if you wish to proceed or you may just want to discuss more options.
What are my other options?
There are many options available:
- Whether you are after a variable interest rate, a fixed interest rate, interest only loan, equity loan or any of the other loans available, it is important that you find out what is available to you before applying for a loan.
- The loans listed below are available for most lending purposes. Whether you are refinancing your home loan to a lower rate, or a property investor looking to buy that second or third property, we will have some ideas for you to consider.
- Even if you are a first home buyer purchasing a new home or renovating your existing home, there are some great deals available from the banks and lenders that we are accredited with.
- Please click on a link below to learn more about other loans that are available to you.
