Which option saves more: offset loan or prepayments?
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If offset home loans have slightly higher interest rates, how can I determine when the extra cost is worth it compared to the interest savings? Would making regular prepayments be a better option for long-term value?
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The main benefit of an offset home loan is how the linked account reduces the interest you pay, potentially leading to substantial savings. However, I believe the choice ultimately depends on flexibility versus guaranteed reduction. While regular prepayments on a traditional loan offer a more direct and certain way to reduce the principal and shorten the term, the offset loan provides the key advantage of accessing those savings later if needed.
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If the main advantage of an offset loan is its liquidity, could it be that a traditional mortgage with a low interest rate, paired with a separate high-yield savings account, provides a more straightforward and transparent solution for maximizing savings and flexibility?