If you’re looking to pay off your mortgage as cheaply and quickly as possible, then an offset account might be just the thing for you. Mortgages generally take decades to pay off and cost you tens of thousands of dollars in interest payments alone. Offset bank accounts are a fantastic way to minimise the amount of interest you owe and speed up your loan repayment.
What is an offset account?
An offset account is a bank account that is connected to your mortgage. You may deposit or withdraw money from the account at any time, and it is completely up to you to decide how much you want to keep in the account. The difference between an offset account and a normal savings bank account is that every dollar in your offset account is counted as if it were actually one dollar in your mortgage account. That is, the bank will consider that money as if it had already been paid toward your mortgage and will calculate your interest owed based on the total amount of money you have in both your mortgage account and your offset account, thus ‘offsetting’ your interest payments.
How will an offset account save me thousands of dollars?
Most of your home loan repayments you pay on a monthly basis goes just towards interest, with only a small portion left to act as repayment on the principal. If you contribute an extra amount each month to your offset account, you will be charged less interest. Over years this can save you a huge amount of money in interest. The amount of interest you owe is calculated on a daily basis, so the more frequently you make deposits, the lower your interest payments will be.
Tips for using an offset account
- You can get 100% offset accounts, or partial offset accounts (such as 40%) which will only count a partial balance toward your mortgage account. Be sure to check whether you’re getting a full or partial offset.
- Some mortgages with offset accounts come with higher interest rates, so be sure compare rates. (or we can help with that)
- To maximise their offset balance for the greatest number of days, some people choose to have their salaries deposited straight into their offset accounts, and then debit their bills and expenses when needed.
Contact us for more tips and tricks for saving money with offset accounts.