Understanding offset loans: Helping you get debt-free faster

Paying off a home loan can be a daunting task. Financially binding yourself to a long-term expense could cause a lot of debate and concern. However, there are a number of ways to help you get debt-free faster.

Regardless of whether you're a property investor or are investigating your first home loan, inquiring about having an offset account facility attached to your mortgage could help to save you a considerable amount of money in the long run.

An offset account works by helping to reduce the amount of interest you pay on your home loan. As an expense, interest is calculated on your home loan daily. You pay this amount on top of your monthly loan principal repayment.

By attaching an offset account to your home loan, you're charged interest on your home loan as normal – but minus any funds that you have in the offset.

An example would be having a home loan of $500,000 remaining, which has an offset account attached with a sum equalling $5,000. When it comes to calculating the interest on your home loan, you will only be charged interest on $495,000 rather than the full $500,000.

Clearly, over the entire lifespan of your home loan, the savings that can be made from this are relatively large. The more money you have in your offset account, the larger your savings will end up being.

By sustaining a sum of money in your offset account, you can reap these interest benefits throughout the lifetime of your loan. By paying less interest overall, you will be able to pay off your home loan faster and become debt-free more rapidly than a normal mortgage.