Offset accounts are very flexible.
If you take money and pay it off your mortgage,
you can’t get it back straight away. You need to apply to get a bigger
mortgage.
But, if you use an offset account, you can get
the money back at any time.
You also can have lots of offset accounts. Some
people like this. If you like to bucket your money into different accounts (one
for emergencies, one for savings, etc.) then an offset account could be for
you.
You can even share your offset with your family.
Let's say Jill’s parents recently sold their
house and had that money in an account. They could set this account up as an
offset for Jill.
That way, they can use their money, but Jill
will save the interest on her mortgage.
Similarly, Jill saves money in her children's
bank accounts. Those can link to offset her mortgage too.
The downside to an offset is it has to be on a
floating rate, which tends to be much higher than a standard fixed rate.
But you only pay interest on the un-offset
amount.
Jill has a $500k mortgage. She sets up $450k on
a fixed 1-year interest rate. Then, she sets up the remaining $50k as an offset
mortgage.
She then has $20k of cash in her bank accounts,
so she only pays the floating rate on $30k of her mortgage.
This is why it’s a really good idea to offset as
much as you can.
However, not many banks offer offset mortgages.
Right now, Westpac, Kiwibank and BNZ are the only ones that do it.
If you use a different bank, you’ll need to use
a revolving credit instead.