An offset account is essentially a transaction account linked to your home loan and is a great way to reduce the amount of interest you’re charged each month. Whatever balance is in your offset account is subtracted from your loan balance for the purposes of charging interest on your loan for that month.
For example, let’s say you have $20,000 in your offset account but have a $60,000 home loan. For the period that you have the offset account, you’ll only pay interest on $40,000. It’s a way of reducing the interest charged without really doing much work!
One of the best reasons to consider to an offset account is it can be a positive thing for both shopaholics and people with savings accounts.
If you have a habit of spending your pay cheque the day you receive it, don’t worry, you can still benefit from an offset account. As long as your salary is transferred to that account, it will have a positive impact on the amount of interest you’re charged since it is calculated daily, not weekly or monthly.
Just by having your salary credited to that account means that you will be reducing the amount of interest you pay on your loan, even if you end up spending most of your income each week.
However, if you happen to be a saver, the benefits can be even bigger. If you have a savings account already set up, you might want to think about switching it to an offset account as you save on interest and you don’t need to pay tax on that interest in an offset account.
What you might find is that the amount of interest you’re saving through an offset account is much higher than the amount you would’ve earned from a savings account – although it’s always best to seek professional financial advice.
Either way, having an offset account means you have the potential to shave years off your home loan just by putting your money in a different account! Seems too simple, doesn’t it?
Just like with most bank accounts, you’ll be able to withdraw money from your offset account through a debit card, ATM or mobile banking.
Why not give us a call today to check if you can set up an offset account for your mortgage? It could save you thousands.