Home LoanWhat is an Offset Mortgage

June 17, 2024

An offset mortgage is a home loan linked to a savings account. The money you have saved in the savings account is used to lessen the total balance you pay interest on every month or let’s say the amount you have in savings will be taken as a credit on your mortgage.

Overpaying vs Offset Mortgage

An offset mortgage is almost overpaying. But when you overpay, you will have to factor in the charges of early repayment fees and accept that you have no access to the cash anymore. With this

also, there is no restriction on how much money you can keep in your linked savings account to offset the interest. But the disadvantage is that you might pay higher interest and fees to get the mortgage.

Types of Offset Mortgage

  • Family Offset Mortgage

    These mortgages are for those who desire to help family members get their dream home. Setting up this kind of mortgage can help first-time buyers get approved by lenders.

  • Buy-to-Let Offset Mortgage

    Landlords can use this to minimise their monthly payments and increase their profit.

Advantages of Offset Mortgages

  • Tax-Free Savings: The interest you save will not be taxed.
  • Better Savings Potential: More money could be saved on interest than would be made in a savings account.
  • Flexibility: Depositing and withdrawing funds into your savings account are still allowed.
  • Easier Mortgage Payoff: Due to lower interest rates, you will be able to pay off your mortgage easier.

Disadvantages of Offset Mortgages

  • Higher Interest Rates: Offset mortgages might come with higher interest rates.
  • No Interest on Savings: Any money saved in accounts linked to the mortgage will not earn interest.
  • Limited Options: There aren’t a lot of other choices of offset mortgages to pick from.

Tips for First Time Home Buyers

Start Saving Early

When computing how much money you need to buy your first home, always consider one-time expenses and also recurring bills. Here are the main upfront costs to consider when saving for a home:

  • Down payment – This will depend on the type of mortgage and lender that you have chosen.
  • Closing costs – These are the fees and charges you pay to finish processing your mortgage.
  • Move-in expenses – You’ll need some cash after the home purchase and also set some money aside for unforeseen home repairs, maintenance and furnishings.

Decide How Much Home You can Afford

Figure out how much you are able to spend for a house before starting to look for options.

Check your Credit Score

Your credit score will decide whether you can be qualified for a home mortgage and affect the interest rate lenders will offer. Having a higher score will give you the opportunity of having lower interest rates.

Research Mortgage Options

Different types of mortgages are available with different down payment amounts and eligibility requirements are available in the market.

Look at First Time Home Buyer Assistance Programs

Many cities offer first-time home buyer programs which usually combine low interest rate loans with down payment assistance and closing cost assistance. If you meet low to moderate income marks, you could be qualified for a grant as per its terms.

Compare Mortgage Rates and Fees

Plan to check for mortgage lenders and try to compare three to five different quotes. This can save you interest in the duration of your loan.

Organize Your Documents

Prepare these documents in advance to stay organised and throughout the process. You will also need those for pre approval.

  • Proof of income and employment like tax returns.
  • Bank statements, retirement and brokerage accounts.
  • Debt payment records like student loans, auto loans or any real estate debt.
  • Documentation of other events that impact your finances

Secure a Preapproval Letter

When you are pre approved, it proves to home sellers and real estate agents that you are a serious buyer and that they can prioritise you over other home shoppers who haven’t taken this step yet.

Choose a real Estate Agent Carefully

A reliable and legitimate real estate agent will check the market meticulously for homes that meet your needs and guide you through the negotiation and closing processes. Get agent referrals from other home buyers.

Stick to  Your budget

To avoid financial stress, make sure to set a price cap based only on your budget and then stick to it. A lender may offer to loan you more than what you are comfortable with or you may feel pressured to spend outside your comfort zone to beat another buyer’s offer in a bidding war. In the housing market, take a look at properties below your price cap to give some room for some unforeseen expenses.

Australian Financial and Mortgage Solutions as Your Helping Hand

Australian Financial and Mortgage Solutions takes the time to know and learn your financial goals and preferences before coming up with solutions to meet your needs. As independent mortgage brokers, Australian Financial and Mortgage Solutions has access to a large network of lenders guaranteeing you get competitive rates and terms. From the first consultation until move in to post sale concerns, Australian Financial and Mortgage Solutions provides continuous assistance and guidance not just for your offset mortgage.

Ready to secure Offset Mortgage?

Schedule with Australian Financial and Mortgage Solutions today for expert advice and personalised solutions customised to your needs. Don’t miss out on the opportunity to achieve your homeownership dreams with confidence and peace of mind.