Offset accounts

Offset accounts offer a link between your savings and your mortgage. The benefits are that you can offset your savings against your mortgage and this in turn reduces your interest payments.

You can arrange to have your salary paid into your offset account. Over time, savings in your offset account can help to reduce the loan principal, allowing you to pay off your loan sooner or build up equity.

There are two different types of offset accounts – a 100 per cent offset and a partial offset account. Most lenders and borrowers opt for a 100 per cent offset facility because of the benefits associated.

• Interest savings that come from a 100% offset loan are higher than with other savings accounts
• You can deposit money into your offset account (such as your salary or a one off lump sum) and therefore save on interest repayments as the balance in the savings account is offset against that owing on the mortgage.

• There may be monthly fees associated with an offset account
• Higher interest rates may apply on the account
• There may be minimum balance requirements in order for the offset account to be calculated

Offset accounts are typically used by people with large savings, who are able to use additional funds to offset their mortgage. It provides a relatively simple and easy way for borrowers to reduce interest payments and increase the efficiency of any tax paid.