Using an offset account for your home mortgage can help you reduce the interest you pay on your loan.
The account works like a savings account, but the balance in the savings is 'offset' against your outstanding mortgage balance before interest is calculated.
This means the savings work harder for you to lower your interest payments. Offset accounts can be useful for a variety of reasons.
Advantage
One of the best ways to save money on your home loan is to put your savings into an offset account. This is a good way to reduce the amount of interest you pay and also shave years off your loan term.
The amount in your offset account is accounted daily against your mortgage balance, so it will reduce the interest you pay over time. Depending on how much you have in your account, this can cut the amount of interest you pay by thousands of dollars over the life of the loan.
You can also choose to have your salary deposited into your offset account, which can help you achieve the same savings on your home loan. This will also allow you to make regular payments and withdraw funds without incurring additional fees.
Another advantage of an offset account is that the interest it earns is not taxed as regular savings accounts are. This can be particularly useful if you are in a high-tax bracket and are worried about your finances.
Many lenders will offset a portion of your offset account’s balance against the principal on your loan to reduce your interest. For example, if homeowner Lisa has a 50% partial offset facility, her lender will apply $20,000 of her $50,000 balance to bring down the principal and reduce the amount of interest she pays on a $500,000 mortgage.
It’s a great way to reduce your home loan’s interest and save money over time, but be aware that some offset accounts may come with higher monthly fees and require you to maintain a large balance. This could be a feature that’s better suited to those who are self-disciplined and can keep their balance low enough to make a significant difference.
A good way to maximise the benefits of an offset account is to have all your extra income or profits deposited into your home mortgage offset account. This can help you to reduce your home loan repayments and save on tax as well.
Aged care
When it comes to saving for an aged care deposit, there are many ways to go about the task of making sure you can afford your golden years. A mortgage offset account is one such way of saving for a deposit without breaking the bank. It is also the smartest way to ensure your loan is the best it can be in terms of interest rates, fees and repayment terms.
Getting an offset account should be at the top of your list of priorities if you’re looking for the best way to save for your golden years. The key to finding the right offset account is to ask your lender what their minimum required balance is, which you will need to know to maximise your savings.
Refinancing
Refinancing your home loan is a great way to save on interest payments and shorten the amount of time you have to pay it off. Depending on your current rate and new monthly payment, you could potentially save thousands of dollars.
Many people will refinance their home loan because of the lower interest rates available in the market. Others may want to take out a new loan in order to reinvest the equity they have in their home into another property, or use it to help pay for school fees or an emergency fund.
However, it’s important to make sure that you do this in a smart way so that it is a beneficial move for your financial situation. It’s also a good idea to speak with your lender before you decide whether or not to refinance, so that you understand exactly how the process works and what you can expect from the new loan.
A mortgage offset account allows you to link your savings and everyday accounts to a home loan, and the interest you earn in these savings is used to offset the balance of your mortgage. This can be a useful tool for Australians who want to slash the interest they pay on their home loans and/or pay off their mortgage faster.
You can have multiple offset accounts and they work just like a revolving credit account, where the interest earned in each individual account is subtracted from the overall balance of the mortgage. It is important to remember that an offset account only works if the balance in your offset account is larger than the overall balance of your home loan.
Offset mortgages are a popular option for homeowners who want to reduce their monthly repayments, but they are not for everyone. They’re most suitable for high-rate taxpayers, self-employed individuals, and those with large amounts of savings or lump sum incomes.
Taking out an offset mortgage is also a good idea if you have a fixed rate mortgage that will eventually shift to a variable interest rate. Alternatively, you can look into a money-merge mortgage which can be a better alternative for many homeowners. It can be a lot cheaper and easier to access, but it’s important to consider all the factors involved before making any decisions.
Interest only
An interest-only mortgage enables you to pay only the interest on your loan for a specified period. You can then choose to refinance your home or begin paying the principal again if you wish. However, it is important to note that interest only mortgages are more difficult to get approved for than traditional repayment mortgages.
Despite this, interest only mortgages can be beneficial for some borrowers. In particular, new buyers may find it useful to reduce their monthly payments while they are still building equity in the property.
It also offers potential tax benefits for property investors. This is because the interest payments are tax-deductible, reducing your taxable income.
Many people have also used interest-only mortgages to invest in rental properties. It allows them to save on the loan interest by avoiding paying it down until they are ready to use the property as a short- or long-term rental.
If you decide to use an interest-only mortgage, it is best to have a savings account that you can offset against your loan. This will help you minimise your loan interest and pay off your home more quickly.
A mortgage offset account works by ensuring that the amount of money you keep in the account is offset against your loan balance each day. This means that the balance of your account is less than the amount you owe on your home loan every time you make a payment.
This strategy can help you avoid paying excessive interest on your loan and reduce your overall costs, especially if you live in an expensive area or have a large amount of other debt. The savings you can make in your offset account can also be used to help pay off your loan faster or fund other investments.
You should discuss your options with a specialist who specialises in interest-only offset mortgages. We work with hundreds of brokers and can match you with the one who is most suitable for your specific needs.
A good candidate for an interest-only mortgage would be someone who is confident that they can make the payments when the introductory period ends or if they expect to come into more cash before that time. This could be an individual who is considering buying a second property or a business owner who has seasonal income or a professional who receives bonuses.
Information provided in this article is general information. If you would like advice specific to your circumstances please contact our office on 1300 957 986.
