A 100% 'offset' account is a sophisticated way of 'fine tuning' your lending requirements to your earnings and your daily spending. In addition to your home loan, you have a linked special transaction account with the same financial institution.
You deposit your income into the (offset) transaction account and use it for all your daily expenses. Interest on your loan is calculated daily however any balance in the offset account is 'offset' against the amount owing on your home loan and you only pay interest on the net balance. So say, for example, that you have a home loan of $250,000 and you have a balance of $10,000 in your transaction account, you only pay interest on $240,000.
Obviously your money is 'working harder' for you - your salary reduces interest payments from the day it is credited to your account. Any extra income or windfall you come across is working for you the moment it hits your account - at the same time as being fully available for you to access whenever you want - usually by ATM a cheque or going online.
Remember however that an offset account can be expensive and they are often not suitable particularly where your discretionary income is low. Why? Because you often pay more interest or higher fees. However there are some lenders such as AMP who currently offer a very competitive home loan with no ongoing fees and a free 100% offset attached. If you don't need an offset account then there are some very flexible basic loans that offer much the same functionality.
If you are buying an owner occupied home that you intend to rent out in the future - you really must get sound advice before you proceed... call us now.
