100% OFFSET ACCOUNT

A 100% offset account is a separate savings account attached to your home loan. Your income is deposited into the transaction account and you would generally use it for all your daily expenses. The 100% offset account operates like a transaction account with cheque and ATM access.

The balance in the savings account is offset against that owing on your home loan and you only pay interest on the outstanding net balance. Over time, the savings in your offset account can help reduce the loan principal, allowing you to pay off your home loan sooner and build up equity in your property.

Advantages of a 100% offset account

• Savings interest is taxable, but because your offset account balance is used instead to reduce your home loan interest, no tax is payable. You are effectively reducing your tax bill

• The interest rate on your offset account is the same as that applied to your home loan account. This rate is much higher than what you could earn on most savings accounts. The interest rate moves with your loan account rate, ensuring you get maximum benefit from each dollar in your offset account

• The money in the offset account is deducted from the loan balance before interest is calculated. This effectively means that your savings are earning interest at the same interest rate as your home loan

• The offset account is much like a savings account. It offers ATM access and a cheque book

• Available on most mortgage lenders' standard variable and introductory rate mortgages

• Any extra money in your transaction account saves you interest on your home loan, thus shortening the term of the loan

Disadvantages of a 100% offset account

• You  may have higher monthly fees attached to the account

• Some mortgage lenders may require you to hold a minimum balance in the account, for example, $2,000 for the offset effect to be calculated

For more information about an offset account or any of the other home loans or investment loans available, speak to one of the mortgage brokers at Intellichoice on 1300 55 10 45. We will be able to recommend a home loan mortgage product that suits your needs and circumstances. Please also use the finance calculators to get a better understanding of your borrowing capacity, loan repayments and stamp duty fees.