An offset account is a separate transactional account which sets off against a linked mortgage. For example, a $1,000,000 loan would only incur interest on $950,000 if there was $50,000 of cash inside the offset account.
With a normal principle & interest repayment, you simply pay more principle in place of the interest you save, meaning the monthly repayment doesn’t change although the term of the loan does shorten as a result.
If you placed $75,000 into offset on the $1,000,000 from the outset, at a 3% interest rate, 30-year term, you would save $100,091 over the life of the loan, and the term of the loan would shorten by 2 years.
We have a range of calculators which allow you to determine offset account savings – please reach out with any questions. Tom.
Written by Tom Morison