How your mortgage broker pays off their mortgage and how you can pay off your mortgage quicker! 

Attacking your home loan with a 100% offset account is the mortgage broker-inspired trick to make some loan interest disappear. While it might sound a bit fancy, it is a great passive tool to save on interest on your home loan. The cash you put in this linked savings account is put to amazing use without any effort on your behalf.

What is a 100% offset account?

An offset account is an everyday transaction account linked to your home loan account. The balance of an offset account is taken away from the remaining principal on the loan before interest is calculated.

On a loan with $150,000 of remaining principal, an offset account balance of $20,000 means that interest will only be calculated on $130,000 ($150,000-$20,000). With a variable rate loan at 6% p.a. interest, this would be an interest saving of $1000 for the first year.

With 15 years left on your mortgage, an offset account balance of $20,000 could save you one year and eight months as well as a handy $9,700 in interest. Use this 100% offset calculator to project how much you could save.

Where can you get a 100% offset account?

An offset account is a feature offered with many variable rate home loans. Typically, loans from major bricks and mortar lenders attract higher interest rates if they come with flexible features such as offset accounts.

Thankfully a range of online lenders still offer 100% offset accounts with their most competitive interest rates.

Dangers to look out for

Occasionally, offset accounts come with sneaky account fees. It is worth enquiring as to whether ATM withdrawal or service fees apply to a prospective offset account. Obtaining a full listing of their fees is a good idea.

A second concern centres around partial offset accounts. These have nowhere near the interest savings of a 100% offset account. They are calculated so that a rate of interest on the balance of the savings account offsets the interest calculated on the principal. When shopping around for a home loan, it’s important not to confuse a 100% offset account with a partial offset account.

100% offset home loans

Loans.com.au Blackboard Special: 4.75% p.a. comparison rate
A highly competitive interest rate, with a flexible offering of both a maximum interest only period of 10 years and a low minimum loan term.

eMoney Plus Full Doc: 5.20% p.a. comparison rate
With the same outstanding 10 years interest only option as as the Loans.com.au Blackboard special, this loan takes it to the next level by offering up to a 95% Loan-to-Value Ratio (LVR).

Newcastle Permanent Premium Plus Package: 5.12% p.a. comparison rate
A very low minimum loan amount of $5,000 and a maximum LVR of 95% make this loan highly flexible. Winner of Money magazine’s ‘Cheapest Home Loan Package (Non-Bank)’ 2013.

Harnessing an offset account like your mortgage broker does could save you big dollars in interest and earn you years of debt-free home ownership. If you want those extra years of freedom to save and invest for a sound, comfortable retirement — an offset account could be the option for you,

Disclaimer: This is general advice only. It doesn’t account for your personal situation. Rates as of 17/05/2013

This was written by Jeremy Cabral, Publisher of top home loan comparison website Finder.com.au, a free website that aims to help consumers make informed choices when selecting a home loan.

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