Why 70% of New Home Buyers Are Loving This Loan Feature

Navigating the world of home loans can feel like wading through a sea of options. Among the plethora of features available, one has emerged as the clear favourite among new borrowers. With high interest rates and rising living costs, a growing number of Australians are turning to home loan offset accounts to make their money work harder for them.

According to NAB, nearly 70% of new home loan customers are choosing to include an offset account, a significant jump from 50% just two years ago. This popular feature can be a powerful tool for reducing interest payments on your home loan.

Understanding Offset Accounts

An offset account is essentially a transaction account linked to your home loan. Unlike a traditional savings account, where interest is earned, the balance in an offset account reduces the amount of your home loan on which interest is calculated.

For example, if you have a $400,000 home loan and $20,000 in your offset account, you only pay interest on $380,000 ($400,000 minus $20,000). This reduction in the principal balance can lower your monthly interest payments. As a result, more of each repayment goes towards reducing the principal of your loan, which further decreases the interest you pay in the following months.

Macquarie Bank highlights that, with a $20,000 balance in your offset account over a 30-year loan at a 6% interest rate, you could save over $87,000 in interest and cut more than three years off your mortgage term. Plus, the funds in your offset account are usually accessible if you need them for unexpected expenses.

Maximising Your Offset Account

To make the most of your offset account, consider the ‘three Cs’ approach: crediting, consolidating, and cutting back.

1. Crediting

Direct your salary into the offset account to maintain a higher balance.

2. Consolidating

Transfer funds from other savings accounts into your offset account. Although you might earn up to 5% interest in a savings account, the savings on your mortgage interest, especially if your rate is higher, could outweigh those earnings. Additionally, interest savings in an offset account are tax-free.

3. Cutting

Reduce unnecessary household spending to increase your offset account balance and maximise your interest savings.

This strategy has proven effective, with NAB reporting a substantial increase in offset account values—from $29 billion in 2020 to over $45 billion today, marking a 55% rise since the pandemic.

Is an Offset Account Right for You?

Despite their growing popularity, offset accounts might not be ideal for everyone. They sometimes come with higher rates compared to more basic loans. If you don’t maintain a significant balance in your offset account, you might end up paying more in fees than you save in interest.

Additionally, consider whether the funds in your offset account could be better invested elsewhere. For those becoming first-home buyers or looking at investing in a property, it’s important to weigh whether reducing your home loan balance or investing for future gains aligns better with your financial goals.

If you’re unsure whether an offset account suits your financial situation, get in touch with us today. Osinski Finance team can provide expert guidance to help you evaluate whether this feature could optimise your mortgage strategy and reduce your interest payments.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.