A Beginner’s Guide to Using an Offset Mortgage

451

Finding the best mortgage is one of the most important decisions you’ll have to make when buying a house, so it pays to do your research. 

Certain types of mortgage, such as an offset mortgage, will help you to shorten the term of your mortgage and potentially save hundreds of thousands of dollars. These savings come from using the interest that you would normally pay, to reduce the principal amount of the loan. 

How do offset mortgages work? 

An offset mortgage is a type of home loan that allows you to directly offset your loan balance with other bank accounts – usually savings. 

Offset mortgages may sound the same as an offset account, and this is no coincidence. And while many of the concepts are very similar, there are distinct differences.  

In an offset mortgage, you borrow against your savings to reduce interest on your home loan. An offset account is used differently as a separate savings account linked to your loan or credit card balance. In some cases, you may have both an offset mortgage and an offset account linked to the interest charged on your loan. 

The offset mortgage is a great product because it works well for borrowers who want to lower their monthly payments while still paying off their loan faster. Offset mortgages were once described as “the best-kept secret in finance”. Now super competitive mortgage deals have made them a more popular option. However, it’s important to get more info about offset mortgages if you’ve decided to settle for that option.  

What are the benefits of overpaying and saving more?

Even if your savings have already been offset against your mortgage, you can add to them. In most cases, this is a good idea, as a large offset means a large amount of interest saved.[Text Wrapping Break] 

You can also overpay with some offset mortgages. As a physical repayment, the money is unlikely to be refunded later since that amount is physically repaid. You will still save interest, however. In contrast, offset savings are kept alongside the mortgage. You can still access your money since they do not repay it. 

Children may benefit from offset mortgages 

As an alternative to having to become a guarantor or giving your children money to buy a home, offset mortgages can be a great option. It is rare, if not impossible, for parents to contribute their own savings directly to a mortgage while maintaining some control.  

If your child does not fall behind on their mortgage payments, you are perfectly able to gift them funds with the promise of getting them back later. 

Advantages of offset mortgages 

  • You can save more money than you earn in a savings account. 
  • There is no tax on the interest you earn. 
  • Maintain easy access to your savings. 
  • Pay less each month or finish your mortgage sooner. 
  • Assist a relative or child in buying a home. 

Disadvantages of offset mortgages 

  • You don’t earn interest on your savings. Therefore, offsetting against another person’s mortgage is not a good idea if you rely on your savings for income. 
  • As your savings won’t grow, they will lose their purchasing power. 

Conclusion 

There are several major advantages of an offset mortgage, the biggest advantage being that it takes you much less time to pay off your loan. Offset mortgages can be a great help when it comes to paying off your mortgage debt. By taking advantage of this loan type, you could see considerable savings and lower the interest rate on your loan.