Fixed Rate Home Loans with 100% offset accounts

Fixed Rate Loans with offset

Normally a fixed rate home loan does not come with an offset account so you would have to split a portion of your loan to a variable rate loan to take advantage of this. However, there are some lenders that offer a 100% offset account even on their fixed rate home loan products. This allows you to have your money work for you to save on the interest charges whilst giving you the certainty of repayments and protection from future rate rises.

What are the benefits?

Fixed rate loans provide certainty with your loan repayments. Since your interest rate will not change for the duration of your fixed rate term, you know exactly how much you will need to pay each month without having to worry about interest rates going up and your loan repayment changing.

Fixed rate loans protect you in a rising interest rate market.

Option to lock in your rate for up to 90 days. Your interest rates are subject to change and is not guaranteed until the day of your settlement. So, if the rate happens to change just before your settlement, your loan will settle on the new rate. Especially in a rising interest rate market, this option comes handy as you will have guaranteed rates for up to 90 days. There is a fee to do rate lock and this is dependent on the lender. Some lenders charge between 0.10 to 0.15% of the loan amount whilst some lenders might have a fixed fee between $300 to $800.

100% offset account without needing to split loan.

Example of how a fixed rate home loan with 100% offset would be beneficial

A client is looking for a home loan that can offer certainty of repayments as they are quite risk adverse and they state that they don’t want a variable rate loan as they believe interest rates will continue to rise. They want to be able to finish paying off the loan as quickly as possible without incurring any break cost.

Solution: Fixed rate home loan that will give them the certainty of repayments as well as protection against future rate rises and with the lender that offers a 100% offset account, they can move their money into the offset account to save on the overall interest charges and help the client finish paying off the loan sooner.

What you should consider or be aware of

  • You may not be able to redraw the extra repayments you have made into the home loan during your fixed rate term if you need to access them in the future. To access your funds, you will need to break the fixed rate agreement and may be charged the break cost. The work-around to this is – instead of putting the extra money into the home loan, you can keep the extra money in the offset account.
  • You won’t benefit from future rate reductions. No one can predict what rates will be in the future however if rates start coming down and you are on a fixed rate loan, you’re locked in at a higher rate.
  • Break costs may apply if you pay out your loan during your fixed rate term or if you exceed the maximum extra repayment threshold during the fixed rate term.

Do I have to get a variable rate loan split to get the 100% offset account?

No, you do not have to do a split loan. You can have a single fixed rate loan account linked to a 100% offset account.

How much is the break cost?

Break costs are unascertainable as it is dependent on the difference in the wholesale rates between the time when you applied for the loan and when your loan is repaid.

Each lender has their own formula when calculating the break cost so it is recommended that you contact your lender prior to paying out the loan or if you want to make a lump sum payment into the loan.

What fixed rate terms are available?

Generally, lenders offer fixed rate terms between 1 to 5 years however there are lenders that offer longer terms as well.

What happens after my fixed rate period ends?

Once your fixed rate period ends, your loan will automatically revert to a variable rate loan based on the standard rate at that point in time less any discount mentioned in the loan agreement (if applicable). It is recommended that you or your broker contact the bank/lender prior to the fixed rate expiry to negotiate for your best rates as well as reviewing your options to ensure you are on a suitable product based on your needs and requirements.

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