So, you’ve found a great home loan rate and want to lock it in fast. Wonderful. But you also want the flexibility to pay off your loan ASAP. So what can you do? On the rare occasion, some clever home loan providers (like Tic:Toc) offer the option to add an offset account to a fixed rate home loan. Which may be just the answer you’re looking for.
Fixed rates and offset accounts - it just works out.
Fixed rates are great because they give you security in locking in your home loan rate. This means you won’t need to worry about potential rate hikes, which can arise at any time with a variable rate home loan. You will also get certainty of fixed repayments, which means you know exactly how much you will need to allocate to your home loan over your fixed period, and can budget accordingly.
The downside to fixed rates is that they can limit your additional repayment amount. This means you won’t be able to pay off your loan faster by making extra repayments. For example, if your situation changes (like getting a pay rise), you won’t get the benefit of paying down more of your principal loan amount to reduce the amount of interest you pay over the life of your loan. Boo.
Offset accounts and how they work.
An offset account is a transaction or savings account that is linked to your home loan. Just like other savings accounts, you can choose to have your salary deposited into it and set up direct debits. You can also have a debit card connected to it for everyday purchases. However, where it differs from other transaction/savings accounts is how it is connected to your home loan. At the end of each day, the balance of your offset account is taken away from the amount you owe on your home loan. The interest for your home loan is then calculated on the difference between them (i.e. on your loan amount, minus the savings you have in your offset account). This means if you have money stashed in your offset account, you will pay less interest over the life of the loan and can pay back your home loan faster.
The perfect pair.
The beauty of adding an offset account to your fixed rate home loan is that you get the best of both worlds. You can have the certainty and stability of a fixed rate, while also gaining the flexibility to pay off your loan faster. Paying less interest on your loan with an offset account makes it easier to reduce the amount still owing as you make your repayments. Everyone wants to pay off their home loan as soon as they can, but having the security that your interest rate won’t change is a great feature too. With a fixed rate and an offset account, you can have your cake and eat it too. How delicious.
Find out more about Tic:Toc’s fixed rate home loans, which all have the option to add an offset account.