When investing into an asset as major as a house or any other property, it is prescriptive to acquire a pillar or support. Many of the investors are assisted by mortgages. Well, if mortgages are a help that you opt for, then there is an urgent necessity for you to be well informed about what is Offset Mortgage.
That’s because if you are applying for a mortgage, then you should take up this option. Offset mortgage can be a boon for some who have their savings to spare.
What is an offset account?
Supposedly, you apply for $500,000 loan on an interest rate of 5%. Now, just imagine that you have a savings of $10,000. “Oh wow!” will be your first reaction. (Well, fantasy world is always wonderful but yes, you have to restrain from spending it.) So, your next reaction should be taking a major and wise step of creating that into an offset account.
It is basically a saving account of that $10,000 you have. Now, since it’s an offset account for your mortgage, the interest rate of 5% won’t be charged on your principle amount of $500,000; rather, the interest rate will be charged on the new principle amount which is: $500,000 – $10,000. That means your monthly interest amount you need to pay back will be reduced.
So, as understood by this example, Offset account is usually a saving account for a mortgage that a borrower maintains with the lender which reduces that same sum from the principle amount and hence, decreases the interest pay back for each month.
Since, it is well understood that opting for an offset account will justify the wise owl in you; it’s time for you to know about every detail regarding it.
– It’s not the same; so choose the best one
Okay, there is the Full Offset and the Partial Offset. Yes, they both are offset accounts but as you perceived already, they are not the same.
Full Offset account, when opted for, will permanently reduce your main principle amount of the mortgage. All of your offset money will be used to payback that much mortgage. This will revive your loan with a new principle amount and reduced monthly interest.
Now if you go for the Partial Offset account, which is a flexible choice for many, same amount would be reduced from the actual principle amount. This, in turn, will of course reduce your monthly payable interest. So, what’s the difference? “Permanent” reduction is the difference. Even if it’s an offset account, you can still access it as an everyday transaction account.
-Best suitable condition for an Offset Account
Just as the best crops are yield in the most suitable season; similarly, Offset Account will yield benefits in the best suitable condition. That’s the reason why you should be aware of it. After all, opting for something wise should be backed up with the right time and suitable circumstances.
So, the best condition is when you are unable to pay that huge monthly interest. Offset account comes here to help you with the reduction along with a flexible access to your savings.
-Does your mortgage qualify for this boon?
It’s great to know that there exists a wise option and a benefit which can assist you to repay your mortgage that vacuums out large monthly payments from your financial store.
But, what if you do not qualify for that benefit? Yeah, right! The first thing to do now is go and check the eligibility of your loan. Acquire the knowledge as to which kind of Offset account can suit with your mortgage and provide you the highest possible benefit.
– The more the merrier
The more wisdom will result in more options and in turn provide better benefits with quantitative increment. Yes, exactly! You can have more than one Offset Account.
This will further reduce your interest and hence, monthly repayments.
It can also assist you in managing large circumstantial expenses with a flexible access to your Offset accounts.
-Exceptions are still always there
Yes, there is one exception in this option too and it is necessary for you to be aware of every detail before you opt. This will restrict the occurrence of unwanted situations.
Offset account’s disadvantages are:
o There will be no possibility of discounted offers on your rate deals.
o The money stored in your offset account will not earn you any interest.
So, just take care of every minute thing before you choose this option because along with a reasonable saving amount, Offset Account requires discipline too. That’s the reason you should consult your financial adviser before taking any step and measure it with your personal situation.