Hi Guys, Pls forgive my ignorance but i am getting very curious to understand this (to better explain i'll use an example):
Lets say i have a mortgage of 150,000, fixed for 3 years. I have my P&I payment of say 1000$ a month. If i deposit 10,000 dollars in my offset account, the interest charged will be on 140,000? Correct? But my payments are still fixed ie 1000 a month, in this case i am paying extra ie interest on 140,000 + principal would be less that a 1000 dollars. Does that mean the extra money that i am paying would decrease my principal amount? If yes then when will the principal be reduced? next month? next year or at the expiry of the 3 yrs fixed term? Because if the principal decreases so should my payments.
I will appreciate your help with explaining the concept or perhaps correcting me.
Hello Show me the money.
Do you know a lender who allows a 100% offset account with a 3 year fixed loan?. If so, I am interested to know which one.
Thanks
ElkaElka
There are many lenders who offer this type of product.
Richard Taylor | Australia's leading private lender
Hi Elkam, the rock building society offers 100% offset with 3 yrs fixed…
Thank you both.
Elka
To answer your question 'Show me the money"
using your example, yes your payments would stay the same if you had $10,000 in an offset account. So you would still have to make your payment of $1000 a month, However because you have your money in the offset account each month you will get charged less interest, so more of your monthly payment will be coming of your principle there by reducing your loan term.
for example say for the month of june you didn't have any money in your offset account and you were charged $970 interest your monthly payment of $1000 has only reduced your loan balance by $30,
But then in July you hold $10,000 in your offset account so you only get charged $920 interest, ofcoarse your payment will still be $1000 but this month your loan balance is reduced by $80 instead of $30,
as you can see it has had a big effect, simply by holding $10,000 in your offset account for a month, plus it works like compound interest in reverse. If you think about that interest that you saved has reduced your priciple of your loan, so you might look at it and say "oh, good I saved $50 worth of interest" but really if you loan term is 25 years you have not only saved $50 interest but you have also saved 25 years worth of interest you would have had to have paid on that $50 if it were still on your loan.Tysonboss! You'r a gem…. thanks a lot for making the effort to clarify this for me….Your explanation is just fantastic……
Ta
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