Offset Mortgage Calculator
What is an Offset Mortgage?
An offset mortgage is a special type of mortgage which allows to offset interest payments on a portion of the mortgage for which you have credits. For example, if you have a traditional mortgage for $300,000, you pay interest on the full amount of the loan, $300,000, until it is completely paid off. The idea behind the traditional loan is that since you borrowed the full amount, you must pay interest on the full amount. In an offset mortgage, you pay interest based on the full amount of the mortgage, minus the credit. If you have a $50,000 credit, you pay interest only on $250,000, since the bank has use of the $50,000.
The advantage of an offset mortgage is that it reduces the total amount of interest you pay over the life of your home loan. Because it is calculated on the net amount remaining on the mortgage rather than the gross or total amount of the mortgage, you pay less and less interest as the life of the loan advances.
Is an Offset Mortgage Right for Me?
Offset mortgages sound great, but you’re probably curious whether one is right for you. The easiest way to find out is to use an offset mortgage calculator to figure out what your payments would be. You just enter the total amount of the loan, the APR, and property tax rate for your city and the offset mortgage calculator will determine your monthly payment. Then you can use other mortgage calculators to figure out what your payments would be with a traditional mortgage.
Offset mortgages might not be right for everyone. They often work by keeping your payments, or “offset”, in a savings account on which you are paid no interest: in exchange, you avoid paying interest on your loan. This works because savings accounts usually pay less than 1% interest, whereas mortgages often have interest rates over 2.5%. The easiest way to see whether this would work best for you is the use an offset mortgage calculator, and let it do the hard work.
Other types of offset mortgages don’t rely on separate savings accounts, but keep everything under a single account. Interest rates vary based on the type of mortgage.
Getting the Right Mortgage
Offset mortgages aren’t right for everyone. Some people are able to make much more money investing the offset amount than they would save by using it as a credit. Using an offset mortgage calculator will help you to determine whether this is the case for you, but you need to know something about your investment options as well. On a $200,000 mortgage, you could save $40,000 with an offset mortgage and $10-15,000 in your account. However, if you could invest that same $10-15,000 and make $100,000, it would be worth it to do that.
An offset mortgage calculator can help you decide which options is best for you, but it is just one of the many tools you will need to use to plan your financial future. Buying a home is the biggest decision of your life, so be sure to take full advantage of helpful tools like the offset mortgage calculator to make sure you make the right choice.
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