How to make your offset account work for you
If you're a property owner looking to pay off your home loan faster, opening an offset account can be beneficial. An offset account is a transactional account that is linked to your mortgage, and the balance in the account reduces the interest payable on the principal amount of your loan.
You can deposit your savings into your offset account and save significantly by reducing your interest over the life of your loan.
For example, if you have a $500,000 mortgage and $30,000 in your offset account, you would end up only paying interest on $470,000. You can potentially pay your loan off faster and save thousands of dollars if you use it wisely.
Offset accounts can be used like a bank account, where you keep your savings and deposit your salary. Lenders offer an offset account mostly on variable-rate mortgages, and sometimes, fixed-rate mortgages, and it is important to consider the features and benefits before making a decision.
There are two types of accounts that can help with reducing interest repayments.
The first type of account is the full offset, which offers the most benefit as they enable the entire account balance to offset the interest on your loan. While the partial offset only allows a fraction of the loan balance to be offset.
Be aware that not every lender will provide the option of an offset account, which is something that is worth considering when looking for a home loan.
There are many ways that an offset account can be advantageous. It can help to save more money by reducing interest payments and effectively lowering the amount of interest paid on your loan.
This is by using your balance in your savings to offset the principal money owed. This can make a considerable difference over the span of your loan, especially if you have a big sum saved in the account. It can also help with clearing your debt more quickly.
An offset account can also give you greater flexibility to access your funds while making as many transfers and withdrawals with no penalty charge.
Making extra repayments can definitely help with paying off your loan sooner, but it can also impact future liquidity if you need cash for an emergency situation. An offset account provides you with nearly the same gains and the comfort of knowing that the funds are accessible at any time.
Some drawbacks of having an offset account may include lenders charging an additional fee or increasing your interest rate to include an offset account together with your home loan.
A crucial step in making an offset account work in your favor is to ensure that you have enough funds in the account to save more on interest repayments, more than any potential costs of keeping the offset.
It is also important to check if you are allowed to make transactions directly from the offset account.
Ideally, the more funds you can consistently deposit and save into your offset account, the better. Making regular deposits and transferring surplus funds are ways to make the most out of your offset while maintaining flexibility for your cash.
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