One in two home owners use offsets to save
Home owners are turning to a popular loan feature to save money on their home loan.
Who isn’t keen on cutting home loan costs? And faced with the pressure of high interest rates, home owners are turning to a popular loan feature to save.
Does your home loan come with an offset account?
If not, it could be time for a re-think.
A recent survey by Mozo 1 found more than one in two Australians (54%) have turned to offset accounts as a way to keep their mortgage costs down.
That makes it worth a look at how offsets can help you get ahead with your home loan.
How does an offset account work?
An offset account works much like an everyday account except that it is linked to your home loan.
Instead of paying interest on the full value of your loan, the balance of the offset account is deducted from (or offset against) the value of your mortgage when monthly loan interest is calculated.
For instance, if you have $10,000 in an offset account and a home loan worth $400,000, instead of loan interest being based on $400,000, it is calculated on a balance of $390,000 ($400,000 less $10,000).
This lowers the monthly interest cost.
As your loan repayments stay the same, more of each repayment goes towards paying off the loan balance rather than interest.
In this way, the loan pendulum starts to swing in a borrower’s favour, helping to pay down the loan sooner, with valuable interest savings along the way.
Is an offset home loan suitable for everyone?
Home loans with an offset account are very effective money savers but they can come with a slightly higher rate.
Even so, you don’t always need a high level of spare cash to reap the rewards of an offset account.
Mozo found 16% of borrowers with a loan offset had a balance of up to $10,000 in their offset account. At the far end of the scale, 12% had over $100,000 sitting in their linked offset.
Here’s the thing.
Virtually any amount of money held in your offset can help you save on interest and pay off your loan faster.
In fact, simply letting your regular income or everyday spending money sit in an offset account can reduce the interest on your home loan.
How much could I save with a home loan offset?
As a guide to the possible savings, Mozo found if you have $5,000 in your offset account and a mortgage of $500,000 at a rate of 6% p.a., over 30 years the money in your offset could help you shave 8 months off your loan term and save $24,453 in interest payments 1 .
That’s a valuable saving!
The main point is that it is worth thinking about how you could benefit from an offset account – either now or in the future.
Sure, if you are a first home buyer, you may not have much spare cash right now.
But this will change over time as your income rises and you can accumulate savings.
Having an offset account in place gives you flexible options to make every cent work harder paying off your home loan.
And there’s a lot to love about that.
At Community First, most of our home loans come with offset accounts as standard. In fact, we buck the industry trend by giving borrowers the option of an offset account on our fixed home loans.
To find out if an offset account can help you save on your home loan, call the Community First team on 1300 13 22 77, or visit one of our Community First stores.
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Community First Credit Union LimitedABN 80 087 649 938 | Operating as Community First Bank | AFSL and Australian credit licence 231204| BSB 512-170