100% Offset Home Loans

A 100% Offset home loan is a home that comes with a linked bank account which is called an offset account. This offset account operates very much the same as a normal bank account, with one difference, the balance of the account reduces the amount of interest you pay on the linked home loan.

Basically, when interest is calculated on the home loan, the balance of the offset account is deducted from the balance of the home loan to determine the amount of interest payable.

As an example, if you have a home loan owing $250,000, and you have $50,000 in your offset account, the interest will be calculated as if you owed only $200,000. The effect is the same as if you had deposited the $50,000 directly into the loan itself. An All-in-One Home loan operates on the same principle, with the difference being that the offset account and home loan are merged into one single account.

When used properly, an offset account can allow you to pay your home loan off faster than you otherwise could – which means putting as much money as possible in the offset account as often as possible, and leaving it there as long as possible. A valid strategy is to use a credit card with an interest free period for all your expenses, and pay off the credit card in full at the end of the interest free period. In this way you are leaving your money in the offset account for the maximum possible time.

However, the benefits of an offset account are that many lenders charge additional fees or higher interest rates for offset loans, which has to be assessed against the interest savings the offset account will generate, which will vary depending on your income and spending habits. As an alternative, many basic variable loans now come with free redraws, so often it is better to get a lower rate basic loan and simply redraw the necessary funds each month to repay your credit card.

If you are interested in the 100% Offset Home Loan, a Mortgage Australia Broker can easily calculate the potential benefit to your specific circumstances.