Residential property borrowers have squirrelled away a record $232 billion in offset accounts – an increase of nearly 15 per cent, or $30 billion – in the past 12 months to reduce their interest payments and shorten loan terms., or more than 23 million top-end 85-inch TV screens.Financial advisers say borrowers with large amounts in their offset accounts should question whether they’d be better off using some cash to invest in equities, or buy an investment property.
The calculations are based on a 25-year principal and interest home loan, where the customer pays a rate that is 0.25 percentage points higher for the offset account, in addition to approximately $200 in annual fees. It also factors in the cash rate rising to 1.75 per cent by February 2024.Tindall says the buffer provided by an offset account reduces interest repayments, “which is particularly beneficial when interest rates are on the rise”.
An ANZ borrower with a $1 million owner-occupier offset loan of 2.99 per cent and $100,000 in the offset during the 25-year loan will pay nearly $156,000 extra in interest over five years compared to having a borrower in the bank’s basic variable rate of 2.19 per cent. The same borrower in a Macquarie offset account option instead of the Macquarie basic variable rate would save more than $17,000 over five years.
An offset offers more flexibility and control. Money in an offset belongs to you. Extra payments belong to your lender.These accounts offset your loan balance using your home’s existing interest rate, which is usually much higher than the average savings account.For example, the average owner-occupied, principal and interest standard variable loan of 3.22 per cent compares to a miserable 15 basis points being paid by some banks’ saver accounts.
Whitten says: “An offset offers more flexibility and control. Money in an offset belongs to you. Extra payments belong to your lender.”Whitten says some savers maximise their offset by depositing all their salary and then spending via a debit card, similar to the way they might use a transaction account.