What are the disadvantages of an offset account?

Account fees: Some lenders offer an offset account with a monthly or annual fee attached. Take this into consideration when looking at your loan options. There are many lenders that will offer an offset account without a fee. Higher interest rate: You might find that taking out a loan with an offset account adds additional basis points to your interest rate.

Does having an offset account affect my rates?

Some lenders will charge higher interest rates for the inclusion of an offset account. Some lenders will also charge fees to maintain an offset account, which will increase the comparison rate.

How does an offset account work when selling your old home and buying a new one?

It's hard to time the sale of your old home so that it lines up with the purchase of a new one. And until your home sells, you may not have a deposit to cover the new purchase. Many buyers in this situation take out a bridging loan . But if you have an offset account and you've been making regular payments, you may have access to enough savings to withdraw and use as a deposit on your next property.

How does an offset account work when turning your home into an investment?

Let's say you decide to convert your current home into an investment property while you buy a new home. If you have paid off most of your mortgage, that means you won't have many interest expenses to claim at tax time. You could then end up paying extra tax as the rental income you receive for your investment property will be added to your own taxable income. However, if you put your savings into an offset account instead of making extra repayments towards your loan, you can withdraw those savings at any time. This means you'll be paying maximum interest again, all of which is tax deductible on an investment loan. You can then use your savings to help you purchase your new owner-occupied home.

Can you have an offset account with a variable loan?

You can certainly get an offset account with a variable loan. In fact, the majority of loans that come with offset accounts on Finder's database are variable rate loans.

Is there a difference between offset accounts with fixed or variable rate home loans?

There are no differences with the offset accounts themselves, although some home loans will charge a fee to have an offset account. The only real difference here would be your savings. With a fixed rate account you know the amount of interest you are saving on, but with a variable rate loan that could fluctuate – meaning your total savings and time saved on the loan could vary widely.

What is a 100% offset?

A 100% offset is where 100% of the money you have in your account is offset against your remaining home loan balance. That means every dollar saved is reducing the interest you're paying. This is in contrast to a partial offset, where only a portion of your offset account balance is used.

What happens to an offset account when you refinance?

As an offset account is directly connected to your loan, you will need to open a new offset account if you are refinancing to a new lender.

How does a home loan with unlimited additional repayments work?

If a home loan lets you make unlimited additional repayments, this means the lender doesn't charge any fee for making extra repayments beyond the minimum monthly repayment amount. This means you can repay the loan faster and face no penalty for doing so. This feature is typically only found on a variable rate home loan. Some fixed-rate home loans let you make limited extra repayments of around $10–$20,000 a year. Some fixed-rate loans don't allow it at all. And you might have to pay a fee for making extra repayments.

How much can you save with unlimited extra repayments?

Here's an example of how much you can save by making regular extra repayments on your home loan. Let's say you've purchased an $800,000 home with a 20% deposit. This means you paid $160,000 for the deposit and borrowed the remaining $640,000. Your home loan is for 30 years, and your variable interest rate is 2.40%. This means your monthly repayments (without extra repayments) would equal $2,495 a month. But what if you repaid an extra $100 a month on top of that? That's only $1,200 a year extra. But if you started making these extra repayments from the start of your loan, you'd repay your loan in 28 years and 4 months instead of 30 years. And you'd pay $15,659 less in interest over that time. If you increased that to $250 a month, you'd repay the loan in 26 years and 4 months while saving $35,811 in interest. You can use our calculator to work out how much extra repayments could save you on your home loan.