An offset account is a transaction account which reduces the interest payable on your home loan by the amount held in your account.
A reduction in interest can also shorten your loan term, as you’ll be able to pay your loan off sooner.
For example, a 100% offset account with $50,000 in it, on a home loan of $300,000, would see interest-only calculated on a balance of $250,000. On a home loan of 5.50% over 30 years, this could amount to a saving of $90,000 in interest, with seven years cut from your home loan.
Advantages of an Offset Account?
The major advantage of an offset account is that it enables you to save money by taking a lower interest rate on your home loan if used correctly.
Just like a saving or cheque account, an offset account also operates as a normal transaction account that has a chequebook, ATM card, etc. attached.
Disadvantages of an Offset Account?
Because an offset account radically reduce how much you owe by cutting the time it takes to pay off a home-loan it may have a higher monthly fees attached to the account.
Also, for security purposes , a typical offset account may require a minimum balance in the account
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