Whether refinancing or starting out new, if you’ve been looking into home loans you’ve probably heard about offset accounts. In case you haven’t let’s catch you up. An offset account is a separate bank account associated with your home loan. The money in your offset account is “offset” (or subtracted) from the loan amount that you pay interest on. In other words, if you have a home loan amount of $500,000, and you have an offset bank account with $10,000 in it, you’ll only be charged interest on $490,000 instead of $500,000. This is why it’s important to get the most out of your offset account – it could end up saving you thousands of dollars over the life of your home loan.
1. Maximise your offset account balance
The best way to get the most out of your home loan offset account is to maximise the amount of money that is in the account at any one time. An easy way to do this is to have your salary deposited directly into the offset and use the account as an everyday transaction account.
You can even set up direct debits to come out of the account so you can keep your bill money in there as well! And if you’re really disciplined with your spending, you can even put your savings in there as well.
Don’t stress if you’re not, some lenders will let you have multiple offset accounts so you can keep your savings separate if you need.
Lastly, if you come upon any windfall funds (salary bonuses, a lotto win, or an inheritance) you could keep that money in your offset account until you’ve decided what you’re doing with it.
Basically, you should consider keeping as much money as you can in your home loan offset account. This is because the amount of money that is in your offset bank account reduces the amount of interest you pay on your home loan. You can read more about how this works in our home loan guide “What's an offset account?".
2. Use a credit card alongside your offset account
Another way to get the most out of your offset account is to use a credit card.
With home loan offset accounts, the higher the account balance the better. By getting a credit card with an interest free period you can use it for your everyday expenses, and then pay it off towards the end of your interest free period.
Doing it this way keeps your actual money in your offset account for longer, ensuring that you are paying the least amount of interest possible. Usually, the interest on your home loan is calculated daily, meaning that each day you can keep money in your offset account, the better. The trick with this method is to make sure that you pay off your credit card before the interest kicks in, so keep this in mind when deciding if this is right for you and always seek financial advice if you’re not sure.
3. Check for extra fees and limitations on your offset account
When looking into and comparing home loan offset bank accounts there are a few things you can check to make sure you’ll be able to make the most out of having one.
Firstly, make sure you know what fees you’ll need to pay, it’s pretty common to have some kind of fee associated with having an offset account, but double check you won’t also have to pay a withdrawal fee when you want to withdraw your money from the account. You should also check that there aren’t any limitations on how much money you can have in your offset account. Having a balance limit will make it harder to maximise the benefits of having an offset account with your home loan.
Lastly, make sure that you get a 100% offset bank account. A 100% offset account means that 100% of the balance in your account is subtracted from your home loan amount when calculating your interest. Some lenders only offer partial offset accounts meaning that only a portion of your account balance is counted.
Checking these things before you decide which lender and offset account to go with will ensure that you have quick and easy access to your money when you need it, while maximising the money you save.
4. Consider getting a fixed rate home loan with an offset account
If you want to truly maximise your savings with an offset account, you could consider getting a fixed rate home loan as well. Fixing your interest rate protects you from potential rate rises (minimising the amount of interest you’ll need to pay on your home loan).
This is a great option, but the downside of fixed rates is that they usually have a limited amount of extra repayments that you can make on your home loan (which limits your ability to pay off your loan quickly). What’s the answer then? Simple. Getting an offset bank account with your fixed rate home loan means you can put as much money as you like in your account to help reduce the amount of interest you need to pay on your home loan. And the less interest you have to pay on your loan, the quicker you can pay it off.
Sadly not all lenders offer an offset account with their fixed rate home loans, but the good news is that Tic:Toc does! You can learn more about pairing fixed rates and offset accounts here.
Offset bank accounts can be a great way to minimise the amount of interest you pay on your home loan. By making sure that you maximise the amount of money you put in the offset account, keeping money in your offset for as long as possible, and making sure there aren’t any limitations or extra fees connected to your offset account, you can make sure you’re getting the most out of it. Pairing a fixed rate with an offset bank account can also help you save money in the amount of interest you pay on your home loan. As always, it’s best to seek out financial advice to make sure these options are right for your specific situation.
If you’d like to chat about offset accounts (or anything home loans), our Home Loan Specialists can help let’s talk.