An Offset Account is an account that sits in conjunction with your home loan account and can reduce the amount of interest you pay on your home loan.
The offset account is generally a normal savings account that can usually be accessed the same way a normal savings account can.
Most offset accounts provide a 100% offset of the balance against your home loan although there are still a few Lenders that only offer a partial offset facility so it pays to check carefully before committing.
Funds in your offset account work to effectively reduce the balance of your loan account and therefore reduce the amount of interest charged on your loan. As interest is calculated daily on your loan, any funds kept in your offset account, even if only for a day, will provide some interest savings. For example, say your home loan has a balance owing of $200,000 and you had $10,000 in your offset account. Instead of calculating interest on the full $200,000 it would only be calculated on $190,000 ($200,000 minus $10,000). For each day that $10,000 remained in your offset account you would save some interest on your loan, thereby helping you to pay the loan off faster.
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