100% Offset Home Loan
Offset loans are a product offered by financial institutions since the mid 1990’s. Although these products have been available for over 15 years, many borrowers are still unfamiliar with how 100% offset loans work.
Although most people refer to this type of product as a loan, it is often called a product feature by lenders within a particular type of loan. Hence what you are getting is a feature attached to your loan called an offset account. In the majority of circumstances, your offset account is also your everyday transaction account.
What is an Offset Account ?
When you take out a offset loan, you are given an offset account /savings account with the particular financial institution with an offset feature.
For example, if you took out a loan for $200,000, you could have a 100% offset account with that loan. If you were to deposit say $10,000 into the 100% offset account, then the money in the offset account will offset against the home loan, thus saving you interest. In this case therefore, you will be charged interest on $190,000.
This type of account immediately uses the savings in your transaction account to save you interest charged to your home or investment loan.
Do all types of loans come with an offset account?
Only standard variables, honeymoon loans, professional packages, and some fixed loans come with offset accounts. It is worth noting that not all lenders offer this or a combination of these types of loans.
What is a partial offset loan?
These types of loans are offered by a handful of institutions. As the name says, the offset account only gives a partial offset against the loan amount. For example, if a person had a $200,000 loan against his property, at an interest rate of 6%, with a partial offset account which saved him 2%, and that person was to have $10,000 in his partial offset account, then he would pay the full interest rate $190,000, and 4% on the $10,000. This is because the partial offset only saves him 2% on the money in his savings account.
It is worth noting, that the partial offset loan is not very common, and is usually found with a fixed loan.
Can I get a 100% offset loan with a fixed loan?
This is possible with only 2-3 financial institutions. This is a very popular option with investors who like to guarantee their interest rate, yet use excess money in their savings offset accounts to minimize their interest bill. The flexibility of this type of loan is that the account is a 100% offset and the user can redraw or take out that money at any time without any penalties or fees. In most cases, the offset account is also your everyday transaction account.
At Mortgage Providers, our consultants are familiar with all types of offset loan features available with various institutions. Our consultants can package these types of loans negotiating a better interest rate than advertised , to suit each client’s needs.