Offset accounts – a closer look at what’s involved

Offset home loans can be a powerful tool, giving home owners a smart way to use savings while paying off their home loan sooner.

In this article, we put offset loans under the spotlight to see why they are so popular with home owners.

How do offset accounts work?

An offset account is a separate bank account linked to your home loan. The balance of this offset account is deducted from (or ‘offset’ against) the value of your loan when interest is calculated.

To see how an offset account works in practice, let’s assume you have a home loan of $400,000 and accumulated savings worth $50,000 in the linked account. In this case, the interest on your loan will be calculated on a balance of $350,000 rather than $400,000.*

For customers only paying interest on your loan, you will see this benefit in reduced repayments required on your loan. For customers paying both principal and interest, you will see this benefit in a reduced loan term. Either way, this could make an offset account a simple yet very effective way of paying off your loan sooner. Take a look at how much you could save with an offset home loan.

The benefits of a home loan offset account

Very simply, an offset account could allow you to make your money work for you by paying less interest without reducing the actual balance of your loan. Apart from the reduced interest payments, for some customers there may be tax savings when using this type of product.

In addition, the offset account with ING is a fee free transaction account which makes it easier for every dollar you have to work for you in reducing the interest you pay on a loan.

Talk with a financial adviser or taxation adviser/registered tax agent to find out how you could make an offset account work for you.

Look for 100% interest offset

Always check that the full value of the linked account – not just a portion of it, is offset against your home loan. The key here is to look for the label ‘100% interest offset’. It indicates that every dollar in your linked account is working hard to deliver savings on home loan interest.

*Illustrative only.