An offset account can be a good way to lower the interest billed on your home loan while also giving you access to your cash whenever you need it. Below is an explanation of exactly how they work.
- An offset account is a transaction account linked to your home loan
- You can make down payments or take money out of it as you would with a regular current account
- The main advantage is that by storing cash in an offset account over time, you can reduce the amount of interest charged on your home loan
- The greater the balance as well as the longer the period, the less interest you'll pay. As well as this helping you pay off your loan faster
It's easier to understand in the example below -
Let's say you obtain a home loan of AED 400,000. You leave a deposit of AED 10,000 in your account. You'll currently be charged interest on only AED 390,000, as opposed to the complete $400,000. This will happen for as long as the AED 10,000 stays in your offset account.
Keeping cash in your account can potentially save you countless dirhams and cut years off your home loan duration.
Let's look at the above example to see just how much you might conserve -
You secure a home loan for AED 400,000. The rate of interest is 5%. The initial loan duration is 25 years. You keep AED 10,000 in your offset account for the life of the loan. You save over AED 30,000 in interest. You reduce the time it takes to settle your loan by more than a year.
Speak to a Holo representative to find out more if this sounds interesting.
This blog is for educational purposes, but everyone's case is unique, and local guidelines and regulations may change. Our mortgage advisors can help you with any question you may have and have the latest advice. Get in touch.