100% Offset Loan Benefits
A 100% offset home loan is very flexible because it provides a separate savings account attached to your home loan. The interest rate on the offset account is the same as that on the loan. Any money you put in the offset loan account is deducted from your loan balance before interest is calculated.
The 100% offset home loan puts you in control. It combines a fully featured home loan with all the benefits of a 100% offset account and lets you see at a glance what you owe (and what you own) because the offset loan balance is shown separately.
The best benefit of the 100% offset home loan is that interest charges are calculated by applying the interest rate to the net balance (loan amount less offset balance) each day.
The 100% offset home loan account allows you to deposit all of your income into the offset account, and then to draw upon some of this money to make routine purchases and other day-to-day transactions. You have a fully transactional account that is earning interest and this interest is debited from that which is accruing on your home loan.
While the money remains unspent in the offset account every dollar is working for you, which is a good incentive to spend less.
100% Offset Home Loan Benefits - Interest Savings
The longer the excess funds remain in your loan account, the greater the interest savings. Often borrowers maintain separate savings accounts not realising the massive savings that can be generated over the term of the loan by including an offset account in their borrowing structure.
The 100% offset home loan account operates like a transaction account and typically has a cheque facility and a cash card. The interest savings on 100% offset loans are higher than you would get on other savings and transaction accounts from a traditional bank. Currently, mortgage rates are around 6.50% whereas deposit rates with the major banks are around 3.50% p.a. and the interest earned would be taxable.
It makes better sense to deposit these savings into a 100% offset account and in effect earn a tax free rate of 6.50% on those savings.
The offset home loan can be taken on an interest only or a principal and interest basis and suits the owner occupier because of the savings in non-deductible interest. An investor with no personal debt may want to also reduce the interest payments but because interest on income-producing property is tax deductible it is not such an effective tool if you are wanting to maximise your negative gearing benefits.
While none of the major banks currently offer the offset account against a fixed rate loan – they will only offer it with variable rate facilities – there are mortgage managers in the market who offer a unique product being a fixed rate 100% offset loan. You can have the security of a fixed rate 100% offset home loan and still reap the benefits of flexibility offered by the offset loan.
Fixed rates are at an historic low and offer the certainty of repayments, so the mortgage manager product offers exceptional features and flexibility at very competitive interest rates.
Take a look at Austral’s 100% Offset Home Loan