A 100 percent offset home loan account allows you to pay off your loan quicker by reducing your interest payments. The offset account is used as a savings account and it works by only charging you interest on the balance of your home loan excluding the money you have in this account. For example, if you borrowed a loan of $300,000 and have $30,000 in your savings account. With the 100 percent offset loan, you will only pay interest on $270,000 due to the offset account balance.
No matter how much you need to borrow, 100 percent offset home loan account is available to everyone. There are no hidden fees associated with this loan, so you will not have to bear additional charges of any sort. It is usually most suitable for families that have high monthly expenses and a dual income stream.
How Does it Work?
A 100 percent offset home loan account is a linked account that allows you to do transactions via check or ATM. You can deposit money in the offset account just like any other bank account and use it to spend on day to day expenses. The interest expense depends on the account balance. The higher the account balance, lower the interest charge will be.
Below are some of the things you should consider, to make sure you make the most of your offset account:
- Depositing salary into the account on a regular basis to avoid the high-interest charges
- Maintaining sufficient balance in the account to be able to repay the loan without delays
- Using the offset account for purchases via BPAY, chequebook, internet banking, EFTPOS, and debit card
- You can also redraw money in the offset account from the home loan account, and can make repayments from the offset account to the home loan account.
Lenders Offering 100 percent Offset Accounts
Here is a list of lenders who are offering 100 percent offset home loan account
- ING Bank limited offers an Orange Advantage Home Loan
- Citibank provides a Mortgage plus Package Home Loan
- AMP Limited has basic and professional loan packages with offset accounts
- National Australia Bank has various 100 percent offset account packages, including National Flexi Plus, Tailored Home Loan, and Tailored Home Loan Choice Package
- Australia and New Zealand Banking Group Limited offers 100 percent offset account with Standard variable rate loan, Breakfree standard variable package, Breakfree standard variable residential land loan, and Professional benefits standard variable residential land loan.
- Suncorp Australia offers 100 percent Offset Account with Standard Variable Rate Loan and Money Manager Standard Variable
- The St. George Bank has various home loan packages, including Advantage Home Loan Package with 1-year discount variable rate, Advantage Home Loan Package with Standard Variable Rate, and Standard Variable Rate Home Loan.
- Westpac Banking Corporation provides Rocket Repay home loan, Premier Advantage Rocket Repay Home Loan, and Premium Advantage Rocket Investment Loan
- The Commonwealth Bank of Australia offers offset account with 12 Month Discounted Variable Rate Loan, Standard Variable Rate Loan, and MAV Standard Variable Rate Loan.
Why Should You Put Extra Funds in the 100 Percent Offset Home Loan Account?
It doesn’t make any difference if you put the extra payments in the offset account or in a home loan account. But practically, it is good to put all the extra funds in a home loan account and keep the routine funds in an offset account. By doing that, you won’t get tempted to spend that money. Instead, it will encourage you to put more money in the account for lower interest rates.
Using an Offset Account with Different Types of Loans
You can use a 100 percent offset home loan account with different types of loans, including investment loans, fixed rate loan, and a basic loan.
- Using Offset Account with Fixed Rate Loan
There are only a few lenders who allow borrowers to use 100 percent offset home loan account with their fixed rate home loan. It offers flexibility in terms of enjoying a fixed rate and having offset account with credit card, check, and ATM access.
- Using Offset Account with a Basic Loan
Although, large banks do not offer offset accounts with a basic loan, there are some non-bank lenders, building societies, and small banking institutions that provide basic loan with an offset account. People who want to avoid ongoing fees and get the benefit of an offset account should apply for it.
- Using Offset Account with Investment Loan
An offset account can be quite useful for those who have an investment loan (tax deductible) on their investment property. However, any additional payment in the loan account will not be tax deductible if you redraw them in the future. In order to determine if the loan is tax deductible or not, the Tax Office focuses on the purpose of why the amount was redrawn. But you can avoid this issue by making additional payments in an offset account.
Young customers make lots of additional repayments into an offset account to purchase a property for residential purpose or turn it into an investment property. However, to get a better understanding of how you can get a tax benefit from an offset account, you should consult a financial advisor or speak to our team at Hunter Galloway.