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Home Loan Health Check and Offset Account Guide

A Home Loan Health Check is a crucial, periodic review of your current mortgage structure, interest rate, and features to ensure it remains competitive and aligned with your financial goals.

I. How a Home Loan Health Check Saves You Money

A comprehensive review, often performed by a finance broker, can lead to substantial savings by addressing four key areas:

1. Interest Rate Savings: Ensures your current rate is competitive with what the market (and your own lender) offers new clients. Even a 0.25% reduction can save thousands over the loan term.
2. Fee Elimination: Identifies unnecessary annual or transactional fees you may be paying that could be avoided by switching products or negotiating.
3. Structural Optimization: Verifies that the loan type (Principal & Interest vs. Interest Only) and repayment frequency still serve your current income and investment strategy.
4. Feature Utilisation: Confirms you are using features like offset accounts or redraw facilities correctly to maximize interest savings.

II. What’s Involved in a Home Loan Health Check

A standard health check focuses on gathering current data and benchmarking it against the market:

Step

Focus Area

Action Item

1. Rate & Term Review

Competitiveness

Benchmark your current interest rate against at least four to five comparable products offered by different lenders.

2. Structure Assessment

Goal Alignment

Confirm if your loan structure (e.g., split loans, fixed/variable components) aligns with your future financial goals (e.g., paying off the home faster, or investing).

3. Serviceability Check

Capacity

A soft assessment of your current income and living expenses to determine your borrowing capacity, which is essential if refinancing is recommended.

4. Feature Analysis

Efficiency

Review your use of offset and redraw features to calculate if they are maximizing interest reduction.

5. Strategic Recommendation

Outcome

Provide actionable advice: negotiate a better rate with your current lender, or refinance to a superior product.

III. Checking Your Offset Account’s Effectiveness

An offset account works because your daily balance in that transaction account is legally offset against your mortgage principal for the purpose of calculating daily interest. It is one of the most effective ways to save money, but you must check that it is working correctly.

1. The Core Formula

The interest you are charged daily should be calculated on the Net Balance only:

Daily Interest = (Mortgage Principal - Offset Account Balance) x (Interest Rate divided by 100/ 365)

2. How to Check (The Practical Test)

1. Locate Your Statement: Find your last monthly or annual home loan statement.
2. Check the "Interest Charged" Line: The accompanying text (or calculation notes) should confirm that the interest was applied only to the net figure (Principal minus Offset Balance).
3. Run a Simple Calculation:

• Note your Loan Balance and your Average Offset Balance for the month.
• Calculate the Net Balance (Loan - Offset).
• Use your interest rate to estimate the interest due on the Net Balance.
• Compare this estimate to the Actual Interest Charged on your statement. If the amounts match, your offset account is functioning perfectly and saving you the correct amount of interest daily.

If the interest charged matches the interest on the full principal, the offset account is either mislinked or not functioning, requiring immediate contact with your lender.

Consult a professional, as this advise is general information and not to be used for specific circumstances.

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