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Loan Payment Formula With Offset Account:
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An offset mortgage links your savings account to your mortgage, reducing the interest you pay by offsetting your savings balance against your mortgage principal. This calculator shows how much you can save on monthly payments by using an offset account.
The calculator uses the standard loan payment formula adjusted for offset balance:
Where:
Explanation: The offset balance reduces the effective principal on which interest is calculated, leading to lower monthly payments.
Details: Offset mortgages can save thousands in interest over the loan term while maintaining access to your savings. They're particularly beneficial for higher-rate taxpayers as they provide tax-efficient savings.
Tips: Enter the original loan amount, your current offset account balance, the annual interest rate, and loan term in years. The calculator will show your reduced monthly payment.
Q1: How does an offset account differ from making extra repayments?
A: Unlike extra repayments, money in an offset account remains accessible while still reducing your interest payments.
Q2: Is there a limit to how much I can offset?
A: Typically you can offset up to 100% of your mortgage balance, but check with your lender for specific limits.
Q3: Do all lenders offer offset mortgages?
A: No, offset mortgages are a specialized product offered by select lenders, often with slightly higher interest rates.
Q4: Can I have multiple offset accounts?
A: Some lenders allow multiple offset accounts linked to a single mortgage for better cash flow management.
Q5: Are offset accounts better than savings accounts?
A: For mortgage holders, offset accounts often provide better effective returns than savings accounts after tax, especially for higher earners.