First home buyer? Mortgage offset accounts explained.

First home buyer? Mortgage offset accounts explained.

Did you know there is a way you could reduce the interest you pay, and pay your home loan off faster?

Buying a home is an exciting milestone but choosing a mortgage can feel like a big responsibility. As a first home buyer, it can be tricky to navigate your way through all the options available and decide on which features will work best for you.

However, if you’re looking to shave years and thousands of dollars off your home loan, you might want to consider a mortgage offset account. It’s not as complicated as it may sound: to help you understand the jargon, we’ve demystified the ins and outs of offset accounts.

So, what is a mortgage offset account?

It’s an account that offsets the balance in that account against the balance of your home loan. This means you pay less interest on your home loan. Over time these savings can really add up and also reduce the time it takes to pay off your loan.

For example, if you have a home loan balance of $200,000 and have $10,000 in your offset account you’ll only pay interest on a home loan balance of $190,000.

Because home loan interest is calculated daily, if your offset account offers you 100% offset, every single cent in your offset account can reduce your home loan interest, every single day.

What to consider in an offset account

Not all offset accounts are the same, so it pays to check the details. Depending on the type of loan you choose, you might want to consider a full or partial offset.

full offset means that 100% of the funds in your offset account will be deducted from what you owe on your home loan before interest is calculated.

A partial offset gives you a reduced interest rate on the part of your home loan equal to the balance of your offset account.

And while your money is working hard to reduce the interest you pay, your offset account will also be every bit as accessible as an everyday transaction account.

How many offset accounts can you have per home loan?

By having multiple offset accounts linked to your home loan, you can manage your finances however you choose while still benefiting from the interest saved by every single cent in your offset accounts. It’s a great way to save for a big spend such as a holiday, a new car, or even another property if you are thinking of investing.

Is an offset account only available with certain types of loans?

Check if your loan is eligible for an offset account by contacting your financial institution. The type of loan may have an impact on the type of offset account available to you (e.g. whether it offers full or partial offset). Fixed loans generally have more limited options in terms of offset accounts, although at the end of the fixed period you may have the option of 100% offset.

Who is an offset account best-suited to?

If you are unable to make additional or lump sum repayments on your home loan, an offset account can give you the benefits of interest-reduction while ensuring your funds are still accessible.

Is an offset account something that could suit your circumstances?

Not using offset yet? Learn more about how you can reduce your interest repayments and pay off your loan faster with our Everyday Offset.

As this advice has been prepared without considering your objectives, financial situation or needs, you should before acting on this advice, consider its appropriateness to your circumstances. Terms and conditions for Transaction, Savings and Investment Accounts and Consumer Mortgage Lending are available by calling 13 2221. Terms and conditions are available on request. If you have a complaint in respect of this product, the Commonwealth Bank's dispute resolution process can be accessed on 13 2221. Commonwealth Bank of Australia ABN 48 123 123 124. Australian Credit Licence 234945.