Why an offset account attached to your home loan is beneficial to you.
In understanding the benefits of an offset account attached to your home loan, you need to know what an offset account is. An offset account is basically a savings account linked to your home loan that reduces the sum owed in your home loan by that which is held in your savings account. Hence, should you take on a home loan of AU$500,000, and have AU$30,000 in your savings account. Having this account linked to your home loan would have you pay an interest on AU$470,000 instead of AU$500,000. Hence, if you are to repay the sum of AU$470,000 over 30 years at an interest of 7.22% per year, you will save yourself the sum of AU$130,078.71. You will also save yourself about 4 years and 6 months from the time within which you would have had to pay the loan sum.
Reduced loan term
The major benefits of an offset account attached to your home loan are a reduced term within which you will be expected to repay your loan. This is because the offset account has reduced the loan sum you would have been expected to pay giving you a shorter period within which you would have completed payment.
Reduced interest rate
The second of the benefits of an offset account attached to your home loan is the reduced interest rate. With an offset account linked to your home loan, you benefit from reduced interest rates and this helps lessen the burden of the sum you would have had to pay back. This is another benefit of an offset attached to your home loan. Hence, every Australian dollar you have in your savings account prevents you from being charged an interest for any moment it is there. This does not deprive you your money as you can still open and access the money in your account through the usual channels.
Costs of setting up an offset account
By setting up an offset account for your home loan, you agree to forfeit any interest you may be collecting on your savings loan. However, you gain by saving on the interest you would have been charged by the bank on your home loan. This, if calculated, will give you a greater gain than what would have earned from bank interests on your savings account.
Most home loans rarely charge for offset. However, it is good to understand fully what you are getting into. This should be inclusive of any fees and charges that you may incur. So the benefits of an offset account attached to your home loan are numerous. The notable reasons however are its reduced loan sum, interest and term.