How does an Offset Account Work?

First of all, what is an offset?

An offset account is a savings or transactional account linked with your home loan, where the funds offset the amount of interest paid on the loan.

The more funds held in an offset account, the easier it is on your repayments because you’ll be paying less in interest on the loan.

 

Offset accounts are primarily available on variable rate loans, and seldom on fixed loans. With Lend Ezy, all variable and fixed rate loans have an optional offset account available to take advantage of.

 

 

Calculating repayments with an offset accountLet’s say you have a home loan of $500,000 with a linked offset account.

You also have $100,000 worth of savings in the offset account.

Since the $100,000 linked to the loan is offsetting the interest paid on the loan, you’ll only be paying interest on $400,000 of the total home loan amount.

 

On a 30 year loan term, that’s a saving of $119,705.40 just by having those extra funds in the offset account.

 

 

 

 

What’s the difference between offset and redraw?

While both offset and redraw can achieve the same goal letting you pay less interest on your loan principal, there is a difference.

An offset account is a separate account linked to the loan whereas redraw grants you access to extra repayments made on the single home loan account.

Find out more about how redraw works here.

 

 

Where’s the math come from?

The Lend Ezy Home Loan Offset Calculator can help you discover how much you could save over the term of your loan with money in your offset account.

Simply enter your loan amount, interest rate, term, amount in offset and when the offset funds start to calculate your savings.