Everything You Need to Know About an Offset Account
Mortgage is different for everybody. It depends on your circumstances and whether you’re looking to purchase your first home or an investment property. Another factor to consider when choosing your mortgage is to evaluate what options your lender provides to help you save on your loan like an offset account or a redraw facility. The good news is that most lenders offer both of these options.
But what is an offset account exactly?
An offset account is a transactional account linked to your mortgage, and it can help you save on the interest of your loan. It all depends on how much is deposited into the offset account to determine your benefit on interest. The mortgage loan amount minus the balance on the offset account provides the total you will pay the interest for. For example, if your mortgage is $500,000 and you have $50,000 in your offset account, you will pay the interest on $450,000 of the loan.
Here are some advantages to having an offset account:
- Flexible and accessible
An offset account is easy to use as it is just like a standard transactional account, so you have flexibility or deposit and withdraw funds with ease.
- Return on your savings
While you won’t receive interest rate on the offset account but depending on how much you deposit into the account, the interest you save on gives all the benefit.
- Reduced tax bill
Savings interest is taxable, but because your offset account balance is payable, you are effectively reducing your tax bill.
Many choose to have their salary paid into the offset account and set up direct debits to pay for bills and daily expenses. Loan lenders have different terms and conditions attached to the offset account, so be mindful as some offset accounts can have a required minimum balance and higher monthly fees.
Everyone’s circumstances are different, so we recommend getting in touch with our finance team, who will be able to give the best advice. Set up a free consultation with our team of mortgage brokers who will do all the hard work for you.