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Should I pay off my mortgage or leave money in my offset account?
Keeping money in your home loan offset account could actually give you more options than paying it off.
The faster you get out of mortgage debt the better off you'll be. But if you've paid off (or are close to paying off) your mortgage through your offset account you actually might want to keep your mortgage a bit longer.
Here's an example. You have a $400,000 mortgage and you've almost paid it off. But instead of repaying the loan you've put $390,000 into your loan's offset account. Effectively, this is the same as paying it off.
But now you have two options:
- Pay off your mortgage. Keep adding to your offset account until you reach $400,000 and then pay off the loan. You're out of debt. But all the money in the offset is gone.
- Keep it open. Keep adding to your offset account, but don't close out the loan. Your debt is small and you have a lot of money you can easily access.
Here's the thing about money: while your home might be worth more a lot, it's much harder to turn bricks into cash when you need it. But the money in your offset account is yours and you can spend it quite easily.
Keeping money in your offset account versus just paying off the mortgage
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The above information might not apply to you, of course. Your loan might not have an offset account, in which case you've just been paying your loan off. And you might have extra savings set aside, meaning the flexibility of the offset account is less important to you.
And you might be the kind of person who just wants to close their mortgage and move on with their lives. And that's totally understandable too.
Max's Mortgage
Max has $150,000 left to repay on his mortgage. He also has $150,000 saved in a linked 100% mortgage offset account.
But thanks to the balance in the offset account cancelling out his outstanding debt, Max doesn't have to pay any interest on the loan amount. So rather than paying off the loan in full, he could keep making his regular loan repayments and then access the $150,000.
He decides to put the money he is saving on interest repayments into a high-interest savings account to further boost his savings balance. Later on, when Max's car breaks down he pulls $10,000 out of the offset account to buy a new car. His offset dips down to $140,000, meaning he has to pay interest on the $10,000 as he pays it back. But this is still much cheaper than getting a car loan.
Whether or not you will be better off paying off your loan or keeping the money in your offset account depends on a range of factors, including your financial circumstances and how you feel about keeping a mortgage in place for any longer than necessary. Chat to a financial planner to get advice tailored to your personal situation and needs.
More helpful mortgage guides
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Ask an Expert
I have a home loan of $400,000 an offset of $400,000 with redraw amount of $200,000. Will it be beneficial for me to transfer $200,000 from the offset account to home loan account and use the balance $200,000 in the offset account for other investments?
Hi Raj!
Splitting your money from the offset account so that some of it goes to an investment is never discouraged, as long as you know it might give more money in the long-run. :)
You can consult our financial advisers to help you decide on this matter based on your situation.
Hope this helps.
Cheers,
Jonathan