Offset Mortgage

sh78

hi,

a question on offset mortgage...appreciate your responses.

Lets say (hypothetical) I have 100,000 mortgage balance. And, I have an offset account and have 100,000 savings in it. Yes, I could clear the mortgage but I want to keep money for rainy day.

Now, if my mortgage repayment is 1,000 per month... which of the following is correct?

1. Because I have offset savings same as mortgage savings, I do not pay any interest on mortgage. Monthly 1,000 payment goes towards capital repayment in full?
2. This also means interest rate changes do not have any impact?
3. In second month of my term, mortgage balance is 99,000. Can I reduce my offset savings to 99,000? As the offset account does not earn any interest on its own, it is good to keep only the money needed to offset the mortgage?
4. So, if monthly mortgage payment goes from offset account, over 100 months time, offset account and mortgage account balance both will be zero?

thank you.

glosoli

Some lenders would keep your repayment the same, and others would reduce it to only the capital element, and others offer either option. Assuming the former:

1) Yes all of the repayment would go towards the capital in full
2) Changes in interest rates may effect your monthly repayment, however if they rose, it would only speed up the repayment of the mortgage, as 100% of the repayment would go towards capital
3) Yes you can reduce your offset balance to match the balance of the mortgage, and it is probably advisable, as any surplus would not be accruing interest, so you are best to "skim" the excess into an interest paying account
4) Yes both would be zero

csgohan4

bare in mind however that offset mortgage are generally higher interest rates than non off set ones

OUNN

The way we are doing it, is that the mortgage payment each month is taken from the Offset savings account - so the savings decrease at the same pace as the mortgage