The power of an offset account.
Find out whether you're eligible for an offset account. Book your free appointment with a home loan specialist today.
What is an offset account?
Your home loan is probably the biggest financial commitment you will make in your lifetime. With an offset account you can reduce the amount your home loan will cost and also pay it off sooner. An offset account is attached to your home loan and works the same way as a regular bank account. You will also be able to deposit your salary into this account and make withdrawals for everyday purchases using a debit card.
How does it work?
The balance in this account is "offset" against the balance of your home loan to reduce the amount of interest you pay to the bank. The more cash you hold in the offset account, the more you save on your home loan.
In the next illustration, you will see that the borrower has a home loan balance of $400,000. But the borrower also has $50,000 in a 100% offset account linked to their home loan. This means they only need to pay interest on $350,000.
To find out more about how an offset account can build wealth, click here.
What other benefits are there?
Many home owners opt for an offset account over a traditional savings account, as interest rates attached to home loans are generally higher than a regular savings account.
An offset account is a convenient way of reducing the interest payable on your home while still holding money that you can use at anytime - such as buying an investment property.
If you are in the acquisition stage of your investing, you can minimise the debt payable on your existing mortgage while having enough funds on hand for your next purchase.
If you are claiming a tax deduction on interest, an offset account may be beneficial and you should discuss this option with your accountant first to see if it is right for you.
Offset accounts and investment portfolios
If you are fortunate enough to have started investing in property and subsequently have more than one home loan, you may be wondering what strategy is best.
In this instance, the structure of your loans are vital. We recommend you speak to your mortgage broker who will help reduce the amount of interest you pay and also ensure you have cash available for future purchases - if you are still in the acquisition stage of your investment journey.
If you would like to know more about how you could benefit from offset accounts with your investment portfolio, send us an online enquiry and we would be happy to discuss further options for you.