An offset account or offset sub-account is a transaction account that's linked to your home loan. Instead of accruing interest like a traditional bank account, the money in your offset account is offset against the balance of your mortgage.
Some banks and financial institutions will offer a 100% offset account, which means 100% of the funds the account is being used to offset your home loan. These are usually linked to a variable rate loan, although you can use a 100% offset account with a fixed rate home loan in some cases.
The more money you have in your offset account, the less interest you will need to pay on your home loan. This means that you will be able to pay back your mortgage faster since more of your repayments are going towards paying down the principal loan amount.
For example, let's say you had a home loan of $400,000 and a 100% offset account with $50,000 deposited. Because of the funds in your offset account, you will only be charged interest on $350,000.
Using an offset account allows you to pay interest on a smaller sum, saving you money and helping you pay off your mortgage quicker.
This home loan offset calculator works by reducing your loan amount by the sum in your offset account before providing an estimate of your weekly, fortnightly, or monthly repayment. The interest rate you input will only be applied to the offset loan amount.
Your results will appear as follows:
Monthly/Weekly/Fortnightly Repayment: An estimate of your minimum mortgage repayments.
Interest Saved: The amount of offset interest that you no longer need to pay.
Time Saved: The amount of time saved by reducing the amount of interest payable.
Revised Time: The revised loan term minus the time saved.
This offset calculator is designed to estimate how much time and money you can save linking an offset account to your home loan. The calculator works on a series of assumptions, including:
Because of the various fees and charges different financial institution package with their home loans, a calculator can't give you a precise answer. Therefore, the results you get from this offset calculator should only be used to indicate what you can save using an offset account.