How do Offset Accounts work?
We often get asked what an offset account is and how do they work.
Here is a quick guide on offset accounts
What is an Offset Account?
An offset account is a transaction account which reduces the loan balance on which your interest payments are calculated.
An offset account is just like a normal transaction account. You can have a debit card as well as deposit your pay in into your offset account. Any funds in the account, even if just for a day, will save you
interest on your mortgage.
Example:
The idea is to have your salary/money/savings/lump sums all sit within the offset account as much as possible and hold the funds there. As interest is calcualted daily on your loan the amount you have in offset balance will determine the interest payable
Key Benefits of Offset Accounts
The key to saving money on your home loan is to have all your money working for you, offsetting the interest on your Owner Occupied home loan.
The key benefits of an offset are;
- Maximise interest savings, thereby paying your mortgage off quicker
- Preserve future tax deduction benefits if you rent the home out in the future.
You generally will not want to offset interest on investment debt until your Owner Occupied mortgage is paid out in full (seek accountants advice).
An alternative to using an offset account is home loan redraw facility, which we will explore in a future blog post
For further info and help please reach out, we will be happy to help
