Offset Account Home Loans are very similar to all-in-one loans, rather than putting all your salary and other income into your loan, it goes into a transaction account that is directly linked to your home loan. Any balance in the offset account is ‘offset’ against your home loan. This reduces the amount of interest you have to repay, making your money work harder for you.
So long as your home loan interest rate is higher than your savings account interest rate, you’re generally better off using an offset account, and not earning the interest. That’s because you’re saving more money by paying less interest on your home loan, compared to the interest you’d be earning on your high interest savings account.
Don’t forget that you’d probably have to pay tax on any interest that you earned in a savings account too. But because this type of account doesn’t earn any interest, you won’t pay this tax by using an offset transaction account.
Offset Account Home Loans calculation
If you had a home loan of $250,000 and you had an Offset Account with $50,000 in it then the bank would only charge you interest as if you owed them $200,000.
So how does this compare to putting your money in a savings account? If your home loan was at an interest rate of 5% p.a. and the savings accounts with the banks were at 3.5% p.a. then instead of earning $1,750 p.a. on your $50,000, by putting it in an offset account you would save $2,500 in interest.
Not just are you $750 ahead in this example, if you consider that the ATO would tax you on the $1,750 interest you earn from the savings account you actually end up even further ahead by choosing an offset transaction account home loan.
Which Lenders offer Offset Home Loan Accounts?
We’ve listed some of the loans offered by our lenders that have offset accounts:
- CBA: MAV Standard variable rate / Standard variable rate / 12 month discounted variable rate / MAV 12 month discounted variable rate
- St George: Advantage Home Loan package standard variable rate / Standard variable rate home loan
- Suncorp: Standard variable Home Package Plus
- ANZ: Breakfree standard variable, Professional benefits standard variable / Standard variable rate loan
- Homeside: (NABBroker): Homeplus variable
- AMP: Professional Package & Basic Loans with offset accounts are available
- Adelaide Bank: Variable Smartfit & any Smartfix
- Citibank: Standard variable offset mortgage
- ING: Orange Advantage home loan
- Plus many more
There are a lot to choose from, so which one is right for you? Some offset accounts are not fully transactional and some lenders allow multiple accounts with one loan. Please contact us on 07 5593 1420 to talk with an Ocean Home Loans mortgage broker who can give you expert advice on offset transaction account mortgages or offset transaction account investment mortgages, or enquire online and we will contact you as soon as possible to discuss your options.
How do Offset Account Home Loans work?
An offset account is a linked transaction account that has the usual ATM, EFTPOS, Phone Banking, Internet Banking and cheque book access, by depositing all your income into the offset transaction account the amount of interest that you pay for your home loan will be decreased.
Usually home loan interest is calculated daily, based on the balance of your home loan each day. At the end of each month the lender will total up the interest from each day in that month (and charge it all at once). This means that every dollar you have in your offset account saves you interest every day that it’s there. And, whenever you need to access your money it is always available to you in the usual ways, such as an ATM or online.
By doing the following you can ensure you are getting the most out of your offset transaction account home loan:
- Have your salary deposited into your offset account so that the amount of interest you pay will be less
- If you have a credit card, make your day to day purchases with the card and pay the card in full on the due date, thereby retaining as much of your cash as possible in the offset transaction account for as long as possible
- Ensure that you have sufficient funds in the offset transaction account to make your home loan and credit card repayments
- You can redraw from your home loan account to your offset transaction account if needed
- If you don’t have a credit card or prefer to only use a credit card for one off purchases use your account for transactions with your debit card including ATM, EFTPOS, internet banking, cheque book and BPAY
- Make your Home Loan repayments from the offset transaction account
Offset Account Fixed Rate Loan
There are several lenders available if you want a fixed rate home loan and an offset transaction account. Please contact us on 07 5593 1420 to talk with an Ocean Home Loans mortgage broker who can give you expert advice on fixed rate offset transaction account mortgages or fixed rate offset transaction account investment mortgages, or enquire online and we will contact you as soon as possible to discuss your options.
Offset Transaction Account Investment Loan
Offset accounts are generally considered more tax effective than a redraw facility, especially for investment loans, by maintaining surplus cash in an offset transaction account, it can be drawn out at any time, for any purpose, without affecting the tax-deductibility of the investment loan it was offset against. Alternatively, if you were to redraw funds that had been deposited into an investment loan account, and those funds were for personal use, you have effectively “contaminated” the loan account through mixed use of funds, and it can be quite difficult and costly to track the private/investment use of funds from the loan. For this reason, offset transaction accounts are generally recommended over loan redraw facilities for investment loans.
Do Basic Loans come with an Offset Account?
Generally no, mostly offset account mortgages are set up as part of a lender Professional Package. The major banks interest rates tend not to be competitive for home loans below $250,000, whilst their interest rate for a Basic Home Loan is. So, if you are borrowing less than $250,000 and taking out a Professional Package home loan with a major bank to get an offset account home loan, it might not provide the savings you would be looking for, due to the annual package fee.
However, some of the 2nd tier banks, building societies and non-bank lenders offer very competitive Basic Home Loans with an offset transaction account. Ideal if you don’t want to pay ongoing fees and have a smaller loan amount.
Apply for a loan with an Offset Account
Please contact us on 07 5593 1420 to talk with an Ocean Home Loans mortgage broker who can give you expert advice on offset transaction account mortgages or offset transaction account investment mortgages, or enquire online and we will contact you as soon as possible to discuss your options.
Warning: The content of this page provides General Advice about offset account investment loans & redraws. It does not take into consideration your specific personal or financial circumstances, needs and objectives and is not a specific recommendation. We recommend that you seek independent financial advice about the tax benefits of an offset account & the implications of redraws from investment loans.
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