Keen to save on your home loan interest repayments?
No doubt the answer is a resounding YES.
We all want to save on interest repayments. The easiest way to do so is with an offset account.
Once you have the offset account, it’s critical to understand how to use it to maximise your savings and reduce your interest as much as possible.
How does an offset account work?
An offset account is a transaction account that is linked to your mortgage. Every dollar in this account works to offset the balance of your loan.
When it comes time to calculate the interest on your loan, every dollar in your offset account makes a difference. It helps to reduce the amount of interest calculated on your loan.
Let’s look at an example.
Say you have a mortgage for $500,000 with $25,000 in an offset account. The interest you pay to the bank is calculated on a $475,000 loan ($500,000 minus $25,000) as opposed to your full $500,000 loan amount.
You are saving money every month simply by having money in the right account linked to your home loan.
What are the benefits of an offset account?
As we have covered, an offset account allows you to pay less interest on your home loan, with the funds in the account, ‘offsetting’ your total loan amount.
One of the biggest drawcards of an offset account is flexibility. With an offset account, you can draw on that money in case of an emergency. It’s still in your hands and not tied up in your loan as extra repayments.
This gives you the flexibility to use your funds as you require. They are there for you to draw on in case of an emergency, or you can pay off a lump sum of your home loan once you reach a certain threshold.
The choice is yours.
How can my offset account work best for me?
The best thing you can do with your offset account is to put as much money as possible into it.
Have your wages paid into your offset
Even if the majority of your wages then get paid out to bills and living expenses, every day makes a difference. Interest is calculated on a daily basis. So even if your full salary only sits in the account for a couple of days or a week, you save on interest for that period of time.
Most banks apps allow you to see the amount of interest you have saved on your offset account settings. It all adds up!
Pop in any extra savings
If you get a tax refund, a gift or work extra hours – pop all your savings into your offset account. Every bit counts.
What to look for in an offset account
If you are on the hunt for an offset account, be sure to look for one that is 100% offset. The majority are, but some may be a partial offset only. Ensure the account is 100% working for you! Ensure you can access your funds quickly and easily with no fees for doing so.
Typically offset accounts are only available on variable loans. Fixed-term loans do not offer an offset account as part of their package.
Partner with an accountant to find the best package for you
It is important to partner with an accountant that understands your needs and the various types of lending arrangements on the market. There are a lot of options available that can quickly overwhelm even the savviest of homebuyers.
We can help you sift through your options and recommend the best lending arrangement to suit your individual needs. There is no cookie-cutter approach. What suits one customer may very well not suit another. With our years of experience, we’ll work with you to find the right package that suits you, your lifestyle and one that will help to maximise your financial position for the long term.