An offset account can be one of the most valuable features attached to your first home loan. For first home buyers in Dubbo and Central West NSW, understanding how offset accounts work could save you thousands of dollars in interest over the life of your mortgage.
What is an offset account?
An offset account is a transaction account linked to your home loan that reduces the amount of interest you pay. The balance in your offset account is 'offset' against your loan balance, meaning you only pay interest on the difference.
For example, if you have a $400,000 home loan and $50,000 in your offset account, you'll only pay interest on $350,000. This can significantly reduce your monthly repayments and help you pay off your mortgage sooner.
How offset accounts benefit first home buyers
First home buyers often have limited savings after paying their deposit and meeting first home buyer eligibility requirements. An offset account provides several advantages:
• Interest savings: Every dollar in your offset account reduces the interest charged on your home loan
• Flexibility: You can access your money whenever needed, unlike redraw facilities which may have restrictions
• Tax benefits: The interest saved is not considered taxable income
• Accelerated loan repayment: Reduced interest means more of your repayment goes towards the principal
Offset accounts with low deposit options
Many first home buyers use the First Home Loan Deposit Scheme or Regional first home buyer Guarantee to purchase with a 5% deposit or 10% deposit. Even with these low deposit options, you can still benefit from offset accounts.
If you've received first home buyer grants or first home owner grants (FHOG), consider placing any remaining funds in your offset account rather than spending them immediately. This strategy maximises your interest savings from day one.
Ready to get started?
Book a chat with a Mortgage Broker at Dubbo Mortgage Brokers today.
Choosing between fixed and variable rates with offset
When considering Home Loan options for your first home loan application, remember that offset accounts typically work with variable interest rate loans. While fixed interest rate loans offer payment certainty, they usually don't include offset account features.
Some lenders offer split loans, allowing you to have both fixed and variable portions. This arrangement can provide:
• Payment stability on the fixed portion
• Offset benefits on the variable portion
• Flexibility to take advantage of interest rate discounts
Your mortgage broker can help you evaluate which structure suits your first home buyer budget and circumstances.
Maximising your offset account benefits
To get the most from your offset account:
- Direct all income: Have your salary paid directly into the offset account
- Delay payments: Pay bills and expenses as late as possible to keep money in the account longer
- Use for gift deposits: If family provides a gift deposit for your home loan application, consider keeping excess funds in the offset account
- Build emergency funds: Use the offset account as your emergency fund rather than a separate savings account
Understanding the costs
Offset accounts may come with additional fees, including:
• Monthly account keeping fees
• Transaction fees
• Higher interest rates compared to basic loans
Calculate whether the interest savings outweigh these costs. Generally, if you maintain a balance of more than $10,000 in your offset account, the benefits typically exceed the costs.
Pre-approval considerations
When seeking pre-approval for your first home loan, discuss offset account options with your mortgage broker. Different lenders offer varying offset account features and fee structures. Some considerations include:
• Whether 100% offset is available
• Minimum balance requirements
• Access methods (card, internet banking, branch)
• Integration with the lender's banking services
Making it work with Lenders Mortgage Insurance
If your low deposit means paying Lenders Mortgage Insurance (LMI), an offset account becomes even more valuable. The interest savings can help offset the LMI premium cost over time, making your overall borrowing more affordable.
Consider using government schemes like the first home super saver scheme to boost your offset account balance. The released funds can immediately start reducing your interest payments.
Getting started
Before you apply for a home loan, create your first home buyer checklist including offset account requirements. Consider factors such as:
• Your expected account balance
• How often you'll need to access funds
• Whether you want multiple offset accounts
• Integration with other banking products
Working with experienced mortgage brokers ensures you find Home Loan options that include suitable offset account features for your situation. They can compare different lenders' offerings and help structure your loan to maximise benefits.
Remember, buying your first home involves many decisions. An offset account can be a powerful tool to reduce your mortgage costs and build wealth over time, but it needs to fit your financial situation and goals.
Ready to explore offset account options for your first home loan? Call one of our team or book an appointment at a time that works for you.
