So most of us have heard the term ‘Offset account’ and we know with a Home Loan offset account we can save thousands of dollars and even shave years off the life of our Home Loan… but how does it really work?
In a nutshell, an Offset account involves your savings offsetting the amount you owe on your Mortgage. You take out a Home Loan and a transaction account will be opened and linked with your Mortgage. This account will be similar to a standard savings accounts, you′ll receive a bank card for electronic transfers, be able to withdraw money from ATMs etc. However, the true benefit is when the money in your account is offset daily against your loan balance, (Interest is calculated daily and charged in arrears) and this will reduce the interest charged. For example, you might have a $400,000 Loan and $20,000 in your offset account. Because of your offset account, you will only be charged interest on $380,000.
By having a decent amount of money in your offset account, you can effectively cut years and thousands of dollars from your home loan. Offset accounts also work just as well if you have your salary deposited into your offset account every payday, so you don′t need a huge amount to start with.
MAXIMISING AN OFFSET ACCOUNT:
One option to maximise the benefit of having your savings offset your mortgage is to use Visa card that offers interest free periods (We currently offer 40 days interest free) on purchases, this allows you to pay for your expenses and bills at the beginning of the month and leave your entire income sitting in your offset account. During that month, you pay no interest on your Visa card, but your income is having the effect of offsetting your mortgage interest for a longer time, as it’s sitting there untouched for that month. When your credit card bill is due, you simply transfer your money out of your offset account and onto your visa card so it’s paid off in full. Because your credit card has interest free days, you don’t have to worry about interest payments on that account at all.