OFFSET ACCOUNTS

Looking for methods to pay off your mortgage quicker?

Whether you’re a long-term property investor or purchasing your first home – an offset account can help you reduce your interest payments, possible save on some tax and enable you to pay off your mortgage quicker.

What is an offset account?

With an offset account the borrower takes out a mortgage that comes with a linked savings account. The balance in the offset account (the linked savings account) is then offset against the mortgage.

How does an offset account work?

With an offset account – instead of receiving interest on your savings the account balance reduces your home loan interest which allows you to pay of the mortgage principal sooner. In example, if you had $50000 in your offset account and $500000 owing on your home loan, the interest on your mortgage is calculated on $450000 instead of $500000.

While your home loan repayments will remain the same each month – you’ll be paying a reduce amount of interest which means you will be paying off more off the actual loan.

Get the max benefit from an offset account

Because your home loan interest is calculated on a daily basis – a lot of borrowers have their salary credited directly into their offset account each pay. This immediately reduces the interest that’s payable on their mortgage. They can still gain access to these funds via online banking, ATM’s etc but because each dollar is saving interest it’s a good idea to try and keep the balance as high as you can.

Another strategy is to cover your monthly expenses using a credit card – that way you can keep the maximum amount of savings in your offset.  When the month ends – pay off your credit card with the savings sitting in your offset account. You need to be disciplined with this approach though! You don’t want to miss payments and rack up interest on your cards.

The upside of offset accounts?

A lot of borrowers could benefit from taking advantage of an offset account. It’s worthwhile chatting with your broker regarding your options as every borrowers circumstances are different.

Happy reading – and feel free to share with anyone who may find this info useful.

Jamie

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If you’d like to have Jamie provide advice on your finance structure, investment strategy, first home purchase, upgrade or refinance simply complete and return this FORM and he will be in touch – this is a FREE, no obligation service.

The information herein is not intended as investment, financial, legal, taxation, building, development or any other advice and must not be relied upon as such. You should obtain independent professional advice and make further independent enquiries before making financial, legal, taxation, building, development or investment decisions.