New Zealand Home Loans: How Do Offset Mortgages Work?
Saving money for a home is a worthwhile goal, although the saving doesn’t stop when you settle on a property. It’s important to prioritise paying off your mortgage and make smart financial decisions, which is much easier when you choose a mortgage that makes sense for your lifestyle.
Offset mortgages are one of the available options in New Zealand, and Mortgage Masters is here to take you through what’s an offset account and how you can use it. Here’s an offset account explained.
What is an Offset Mortgage?
Let’s start with offset accounts. This type of mortgage allows you to use funds in a separate savings or everyday account to offset the home loan balance, which reduces the interest charged. Many NZ home buyers find offset mortgages appealing because the money remains accessible in the account in case you need it. This is a good way to offset the remaining mortgage balance and save on interest charged, which can make a difference especially during times of rising interest rates.
How Does an Offset Mortgage Work?
Understanding the question “what is an offset mortgage?” is one thing but knowing how they work is another. Essentially, your home loan will include the loan account itself, and an offset account that you can use for savings or everyday spending. The offset balance is factored into interest calculations for your home loan, reducing the amount of interest you pay. While you won’t usually earn interest on an offset savings account, the interest savings on the home loan make up for it.
What is Offset Mortgage?
Let’s look at an example of offset mortgage. If you have an offset mortgage with $400 000 owed and a linked offset savings account with a $10 000 balance, you will only be charged interest on $390 000 for your home loan. The more you put in savings, the less interest you will pay. However, any withdrawals from savings will lead to an increase in the interest charged for your offset home loan. Many lenders let you set up an offset account where your monthly mortgage payment is automatically deducted, too.
Is an Offset Mortgage Right for You?
If you have healthy savings even after your home deposit or prefer a variable interest rate, an offset mortgage may be the best move. Floating interest rates on offset accounts can change in line with the Reserve Bank, so the more money you can add to your offset account, the better. Also, if you’re tempted to spend your savings, an offset mortgage may be a good money management solution.
With the interest savings on your home loan, you will be able to see your offset account working for you. Often, the interest you save on your mortgage is more than the interest you would make in a standard savings account. In that case, an offset mortgage helps you manage your home loan and your overall finances effectively.
Discover Offset Mortgage Options in New Zealand
Want to learn more? Contact us now for an offset account explained by Mortgage Masters. If you’re interested in paying less interest on your mortgage by sacrificing earning interest on savings, we can help you find the best offset mortgages in New Zealand. Contact us for more information on what is offset mortgage and how it can work for you.