Congratulations! You’ve saved and scrounged a deposit, finally found the perfect home, and now all that’s left for you to do is to get your loan approved and schedule the moving truck… right?

 

Not quite. In fact, the world of mortgages is vast and layered with details which, whilst they seem small on the surface, actually make a world of difference when it comes to not only how your payments will be structured, but how much you’ll find yourself owing the bank each time payment date rolls around. It’s easy to think your questions for the bank end at ‘how much can I borrow?’ but there are many more areas to explore together beyond these basics.

 

By doing your research at the beginning and familiarizing yourself with the range of products available, you’ll be able to make informed decisions which guarantee your financial future is set up in a way that suits you on an individual basis. Of course, you don’t need to make these decisions on your own. This is where working with an experienced and committed mortgage broker can make all the difference in the world when it comes to the size of the smile on your face the day you finally sign that mortgage loan.

 

One of these crucial details is the mortgage offset account. Although an offset account may appear and operate like a regular everyday account, there’s one vital difference that makes a huge change in the short and long term. This offset account is directly linked to your home loan, and any money which sits in the account acts to reduce the amount of interest which is payable on the loan. This is a wonderful way to bring down your weekly/fortnightly/monthly mortgage repayments without actually contributing any extra funds, protecting your flexibility and range of choices. This is an area of great importance and as such, is one topic you should definitely raise with your mortgage broker in order to receive their expert advice.

 

So, here are the fundamentals that will help to guide your conversation when looking at your offset loan choices!

 

What is a mortgage offset account?

 

A mortgage offset account is an account which is opened when a borrower enters into a home loan and is linked directly to the loan. By placing funds into this account, the total amount in the account is calculated as being paid off of your loan balance, effectively reducing the mortgage interest rate that is charged.

For example, let’s say you’ve got a $300,000 home loan, but you’re able to move $20,000 into your offset account. Although you haven’t attributed that $20,000 to the loan, you’ll only be charged interest on $280,000 – which, over the course of time, can add up to a significant reduction in the interest charged against the loan. All the while, you maintain control and flexibility, and are able to use that money as needed on a daily basis without issue. It’s a pretty great deal for borrowers when you look at the difference it can make to each mortgage payment!

 

The benefits of having a mortgage offset account

 

There are many benefits to setting up a mortgage offset account, with the most visible being the ability to reduce the term of your loan by potentially years and the amount of interest paid by thousands. One way to take full advantage of this feature is to deposit your pay cheque directly into your offset account, automatically letting that money work for you by reducing the interest payable on the overall loan. Don’t be fooled into thinking this offset account will only be of value to those with large savings: by making this small, subtle change to your everyday banking, you’ll reap the benefits in savings over the course of your loan.

Another benefit is an added layer of security for homeowners. In the 2017 Australian market, where it’s already difficult to get into the real estate market for many, any added security will provide more peace of mind for home owners and help them to sleep well at night. By adding an offset account into your mortgage setup, you’re able to reduce some of this risk by combating large increases in your regular mortgage payments.

There’s also a great benefit in the flexibility an offset account awards you. Unlike many high-interest savings accounts where you’re locked into a certain amount of time before you’re able to touch your finances, or else you’ll lose the interest potential, an offset account works for your finances on a daily basis whilst still giving you complete freedom and immediate accessibility to your funds. In fact, you’ll most likely end up making more money through the amount you’ll save in interest chargeable, which will quickly overpower the lower interest rate you may make by parking your money for safekeeping and slow growth in a long-term savings account.

 

How can a mortgage broker help with an offset account?

 

A mortgage broker can be an invaluable partner when it comes to structuring your home loan with a mortgage offset account. Not only are mortgage brokers familiar with the products available in the home loan market, but they’re able to make simple adjustments to how your loan is structured that will end up giving you greater flexibility and potentially saving you thousands.

Your mortgage broker can help you to evaluate the variety of home loan products available to your particular financial situation, and can work with you to ensure you make an informed and strategic decision around your final loan structure.

At times, mortgage offset accounts are linked to loans which require different pre-requisites, and this is another area where your mortgage broker can work to negotiate with the bank on your behalf in order to ensure you walk away with the best deal possible.

 

Offset accounts require discipline

 

Of course, getting the maximum potential from your offset account requires an understanding of the principles of how it operates, followed up by discipline to position yourself to get the most benefit from it as possible. It’s not going to work as well as it could if you have an everyday debit card linked to your offset account, especially if you’re the kind of person to go on a shopping spree at a moment’s notice without much planning.

Instead, only link fixed direct debit costs to your offset account for automatic payments. Weekly spending money and disposable income should sit in a different account so you’re not easily tempted to spend a bulk of your available cash at once.

Because offset accounts can be a little more expensive than their basic loan counterparts, it’s important to adopt a carefully planned strategy to use this account to its maximum long-term savings potential on the interest reductions you’ll receive.

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