While these three banks all offer the option of an offset loan, and they are similar – they are not all the same.
They have to use a floating rate on interest and that’s almost always higher than the fixed rates, so you should always consider how much of your overall lending is set up as an Offset account and that calculation should be based on what funds you have deposited in other bank accounts with the same bank that are able to be linked.
You can set up your total mortgage as an offset loan if you want, and if you have the equivalent in savings that means you could pay zero interest and yet retain full access to your money.
How Offset Home Loans Work
Offset home loans can reduce the amount of interest you pay on your home loan, by using money in your everyday and savings account to ‘offset’ your home loan interest charges.
The banks differ slightly on how they operate offset home loans, but the advantages are;
You can keep a balance in your everyday accounts and use this to offset your home loan interest.
You can keep a balance in your savings accounts and use this to offset your home loan interest.
Your parents can keep a balance in their accounts (linked and with the same bank) and use this to offset your home loan interest.
Offset loans have become a popular choice and we’ve seen people prefer these to revolving credit accounts as you can link them to a number of accounts giving you more flexibly and better control of your money.
Often people use various bank accounts to help make budgeting easier, and an offset means you can do this while saving money and paying your home loan off faster.
Note: Kiwibank allows you to link up to 8 accounts, Westpac up to 10 accounts and BNZ up to 50 accounts. The banks all allow the offset account to be linked to personal bank accounts and those of your spouse, parents or children but not other non-personal entities such as a trust or company.
The key is that you pay less overall interest on your home loan, and that means either having lower repayments or having your mortgage repayment reducing more principal – ie: to pay your home loan off much faster.
Which Bank Offers The Best Offset Loan?
As mentioned, there are currently only the three banks that have an offset loan and that’s a real shame given how much people can benefit from these types of loans. Also as mentioned, the options are quite similar but in most cases form just a small part of your overall loan structure.
So when we look at which bank is offering the best offset home loan we really need to do that in combination with the flexibility of the banks fixed home loans too.
BNZ Fixed Home Loans – they allow you to increase your repayments on a fixed loan by 5% and decrease it back to the minimum.
Kiwibank Fixed Home Loans – they allow you to increase your repayments on a fixed loan by 5% but they do not have the option to decrease the repayments again.
Westpac Choices Fixed Home Loans – they have more flexibility when compared to BNZ and Kiwibank – they allow you to increase your repayments on a fixed loan by 20% and decrease it back to the minimum, but also you can redraw money from the fixed loans if you have been paying more than the minimum.
It’s important to remember that your home loan is a larger financial commitment and something that you will likely have for some years. It’s therefore critical to have the flexibility to pay it off faster but also to have flexibility should something happen in your life – especially something unexpected.
For that reason, when you are looking for the best home loan it is hard to go past the Westpac Offset combined with Choices Fixed Home Loans. It’s also importance of understanding mortgage repayments and how small changes can make a huge difference to how quickly you can pay off your mortgage and the overall interest that you pay.
Getting this right will always save you more than just chasing the lowest interest rate.
What’s Next – Who Do You Contact Now?
Offsets – its quite a simple concept really, but often not well explained.
If you want to consider an offset then you want to speak to a mortgage adviser that (a) knows how they work and (b) can recommend which of these banks offers the best offset and best loans too.
Your mortgage adviser may suggest this as a good option and helps you to manage your home loan better.
Here at Mortgage Managers we have a team of advisers that are trained to help you with all the options, including offset home loans.
