What’s an offset home loan?
An offset home loan, or offset mortgage, links your everyday and savings accounts to your home loan. The money in those accounts reduces the interest you pay.
It suits people who keep healthy balances in their accounts and want that money working against their mortgage while staying accessible.
How it works
Say you owe $500,000 on your home loan and have $50,000 in your linked accounts. You only pay interest on $450,000. The more money in your linked accounts, the less interest you pay.
Most offset loans work on a one to one basis, so every dollar in a linked account offsets a dollar of your loan. Interest is calculated daily.
Key features
Features vary by lender, but these are typical.
Interest rate: offset loans are usually on a floating rate, which can change at any time.
Linked accounts: you can usually link several everyday or savings accounts, which may include your own, a joint borrower’s, or family members’ accounts. Each account can only link to one offset loan.
No credit interest: linked accounts don’t earn interest, because their balances are reducing the interest on your loan instead.
Repayments: you still make a minimum repayment, but more of it goes to the principal, so you pay the loan off faster. You can usually make extra repayments without a penalty.
Flexible structure: you don’t need to put your whole loan on offset. You can split it across fixed, floating, revolving and offset portions.
Eligibility: offset loans are generally available to individuals and to couples who are married, in a civil union or in a de facto relationship.
How Finsol can help
An offset works best as part of a well structured loan. We compare offset options across lenders and set up your lending to help you pay off your mortgage sooner. See also our guide to four ways to pay off your mortgage faster.
Call us on 0800 346 765 or book a free consultation.
Finsol is a financial advisory business founded in Hawke’s Bay in 2010, looking after more than 6,000 clients across New Zealand. This article is general information only and does not take your personal circumstances into account. Offset features vary by lender.
