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Step 1
What Is An Offset Mortgage?
An offset mortgage is a special type of mortgage where your loan principal is attached to a non-interest bearing savings account. What happens is that any money you carry in your linked savings account deducts from the amount you owe on your mortgage. Sounds complicated, but lets look at an example. Pretend you have an offset mortgage for $300,000 and you have $50,000 in your linked savings account. When the bank calculates your monthly interest payment, they will calculate it based on the mortgage amount (300,000) minus the balance in your account (50,000). Therefore, your monthly payment is significantly less and more of your mortgage payment goes to the principal instead of interest. In the US due to tax laws, it works slightly differently. -
Step 2
Offset Mortgages in the US
Based on tax laws, offset mortgages work slightly differently in the US. Rather than linking to a savings account, you would deposit your monthly paycheck into a mortgage account. This offsets your principal mortgage amount and therefore lowers your monthly interest payment. If you carry a balance or make large deposits (like bonuses) your interest payments will reduce over time and you will pay your mortgage off faster. -
Step 3
How An Offset Mortgage Benefits You?
Let's revisit the $300,000 offset mortgage in the first step. Let's say you are able to save about $450 monthly from each payment in your linked account. Overtime, you would slash your interest by almost 200,000 and pay off your mortgage in 18 years as opposed to 30. It is really an incredible savings if you are disciplined enough to save money in your linked account monthly. -
Step 4
Where To Get Offset Mortgages?
Currently only two companies in the US offer offset mortgages - CMG Financial Services and Macquarie Mortgages USA.
Comments
jenng said
on 4/29/2009 I will check out this offset mortgage 5*