Home Mortgage Offset Account

[prof61820]

Is anyone using one of these to keep interest down on their home loans?  Does it make sense if your home loan interest is low (below 5%)?  Seems like something to pursue if you want to pull money out of the stock market for a while and remain liquid.

Here's how it works: "if you owe $200,000 on your home but have $50,000 on deposit, the bank calculates your monthly interest as if you borrowed only $150,000.The bank gets its back scratched by getting to use your deposit interest-free. You pay off your mortgage faster because more of your monthly payment is applied to principal - and you can get your hands on your savings any old time."

Here's a couple of links.  It looks like they are used more in Australia, New Zealand and Great Britain than in the US and Canada.

http://money.cnn.com/2007/11/29/real_estate/offset_loans.moneymag/index.htm

http://voices.yahoo.com/how-offset-mortgage-5004584.html

[KingCoin]

I bet the devil is in the details. I suspect that the "offset" acts as collateral against the loan, and can be seized by the bank upon missed payment. If this is the case, why not just use the "offset" to pay down the mortgage and get a HELOC? The net result seems about the same.

[arebelspy]

I'm familiar with them, but haven't found the places offering them as competitive as other mortgages.

It gets a lot of hype though, especially because of some Ben Stein quote about them being good.

[prof61820]

It gets a lot of hype though, especially because of some Ben Stein quote about them being good.

Ben Stein from Ferris Bueller?  How could he steer you wrong?

[arebelspy]

It gets a lot of hype though, especially because of some Ben Stein quote about them being good.

Ben Stein from Ferris Bueller?  How could he steer you wrong?

I know, right!?

[marty998]

Yes I have one and make bloody good use of it. Structuring your loans is important if you plan to keep you existing home as an investment property when if you buy a new one. An offset allows you to save on interest and then you can simply strip the funds out to use as a deposit on your next place and have a maximised deductible interest loan down the track when the time comes.

If you pay the funds into the loan and redraw, then try and claim interest on your IP the ATO will be all over you.

Whether you pay down your loan faster or use an offset account doesn't matter to the bank. The banks hate it because they have to find someone else to lend that money to now, when they were "banking" on you to be a good customer and pay interest on the loan for the next 30 years.

[prof61820]

Thanks Marty - any idea on how I can get one in the USA?

[Strawberrykiwi75]

Offset mortgages are very useful, provided the interest is calculated daily. Your normal expense accounts eg. Cheque with say, $4000 then offset and reduce your interest, even if you don't have big savings. Even small amounts can end up saving months off a term.

The downside is that these are floating interest rates, so can change at any time. You can then fix if the interest rate starts to get too high, but you lose the offsetting benefit.

I encourage my clients to have atleast a small amount on offsetting because I've seen how much it can save people in the long run.