When you're staring down the barrel of a 30-year mortgage, you want to take advantage of all the help you can get. An offset account could lend a hand.
An offset account can be extremely beneficial in helping you pay off your mortgage sooner and save you significant amounts of money in the process. In essence, it is an account linked to your mortgage that allows you to offset the interest that you pay on your home loan.
Sounds amazing, but how does it work?
Here’s a scenario. Imagine you were to borrow $600,000 for a home loan and you transferred $40,000 to your offset account. You would only pay interest on the $560,000 leftover on your home loan, instead of the total loan amount, which can help you save thousands of dollars on interest repayments over the full term of the loan.
Generally, for people with owner-occupied home loans, the biggest benefit for an offset account is flexibility and convenience.
Key Benefits of an Offset Account
1. No spending restrictions
An offset account will allow you to deposit and withdraw money whenever you want to access the funds, similar to an everyday account.
2. Great tax benefits
The money in your offset account doesn’t generate any interest which is usually considered taxable income. This is a huge bonus if you have large sums of money deposited into the account.
3. Put your extra income to good use
Do you have a side hustle or have an additional source of income, such as bonuses or profits from shares or investments? If you do, putting these funds into your offset account will assist you to make the most of the additional money.
A Word to the Wise
With any money decision you make, you need to also consider the disadvantages. The main issue with taking out an offset account is the additional costs associated. To make the most of having the account and the costs associated, it is recommended you have a sum of funds in your account to negate the bank fees and charges. Without a large amount of cash in your offset account, you might be better placed with a standard home loan facility. It’s always best practice to discuss your options.
DISCLAIMER: This article contains general information only, and is not general advice or personal advice. Wisr Services does not recommend any product or service discussed in this article. You must get your own financial, taxation, or legal advice, and understand any risks before considering whether a product or service discussed in this article may be appropriate for you. We have taken reasonable efforts to ensure that the information is accurate at the time of publishing, but the information is subject to change. We may not update the article to reflect any change.
*The comparison rate is based on a loan amount of $150,000, over a 25 year term. WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Terms, conditions, fees and charges apply and your full financial situation would need to be reviewed prior to acceptance of any offer or product. Fees included in the comparison rate include: Application Fee, Settlement Fee, Estimated Solicitor Document Preparation Fee, Estimated Valuation Fees , Discharge Fee, Annual Fee if applicable and Offset Fee if applicable.