Offset Account [How do Offset Accounts Work?] + 4 Tips to Save $$$
HTML-код
- Опубликовано: 26 авг 2019
- An offset account may help you pay less interest on your home loan. Here’s our guide to mortgage offset accounts and how they work.
For more details - www.huntergalloway.com.au/off...
What is an offset account?
An offset account is a savings account or transaction account linked to your home loan account. The account’s balance (or a proportion of that balance) is ‘offset’ daily against your home loan balance, and as a result you’re only charged interest on the difference between the total loan balance and the amount offset.
This means the lender charges you less in interest because they are not charging you interest on the full, actual remaining balance of your loan.
Offset accounts may be linked to either a variable rate loan or a fixed rate loan. Some home loans may specify that the offset applies for a fixed term, such as a 100% offset for a year against a 1-year fixed rate loan.
How does an offset account work?
Offset accounts work by offsetting up to 100% of the balance of the linked savings or transaction account against the balance of the linked loan.
In the case of a mortgage offset account, the balance of the account reduces the balance of the mortgage that incurs interest. For example, if you had a loan of $350,000, with $100,000 in a linked 100% offset account and $100,000 repaid, you may only pay interest on $150,000 of your balance.
Types of offset accounts
There are two types of offset accounts:
Balance offset account: These accounts offset the interest payable on the mortgage by the balance of the account. The percentage of the balance that will be offset can range right up to 100%. However, a partial offset account may only offset your mortgage by a portion of the balance, for example, a 50% offset account will only offset the interest bearing portion of your mortgage by 50% of your offset account balance. So the higher the percentage of the offset account, the more you will save in interest on your mortgage.
Interest offset account: These accounts offset the interest payable on your mortgage by the interest earned in the account. However, this could be substantially less than the interest rate of the mortgage. Depending on the interest rates of your mortgage and offset account, these accounts are likely to be significantly less favourable than balance offset accounts, but they are also less common.
Pros and cons of an offset account
First, by having a decent amount of money in your offset account, you might effectively cut years from your home loan and pay thousands of dollars less in interest. You don’t necessarily need a huge amount of spare savings, though - every cent in your offset account is saving you money in interest off your loan, for a 100% offset account.
Secondly, an offset account is simple for most people to manage. You could have your salary deposited into a standard savings account or transaction account every payday, and if it was linked as an offset account to your loan it would automatically save you money on your monthly interest payments.
And thirdly, having an offset account can be an easy way to keep excess funds at hand while still minimising your interest payments on your mortgage, so if your financial situation changes or if something unexpected like a medical emergency were to happen, then you will be able to easily access the money that has been offsetting your mortgage instead of having to redraw on extra repayments you have made on your home loan, which is often limited to minimum amounts and/or come with fees.
Offset accounts can be a great tool for some home owners, particularly with the flexibility they can provide. They can also potentially save you money and cut time off your mortgage.
However, keep in mind you may find yourself either paying an additional fee for a loan with an offset account, or alternatively, you could end up paying a higher interest rate on your mortgage. The financial benefit of a mortgage offset account will depend on a number of factors, such as the interest rate and fees of comparable loans (with or without an offset facility) and how much money you are likely to keep in your account. So, it is important to weigh up your individual circumstances and determine if an offset account is right for you.
How much could you save using an offset account?
An offset account can be a great way to save thousands of dollars in interest on your home loan.
DISCLAIMER:
This video offers no Legal, Financial and Taxation advice, and the information contained is general and does not take into account your personal situation. The Listener acknowledges, consents and agrees to the viewing of the content presented on the Channel is subject to the full Disclaimer (below) and agrees to be unconditionally bound by this Disclaimer.
Full Disclaimer here - www.huntergalloway.com.au/you...
![How To Increase Borrowing Power [11 Simple Strategies]](http://i.ytimg.com/vi/T76Oct5voF0/mqdefault.jpg)
![How To Increase Borrowing Power [11 Simple Strategies]](/img/tr.png)
Join FB Group (Free Access) 👉 facebook.com/groups/209395390748110/
Great video guys :) love how simple you've made it
Thanks for watching 🙌
I agree some people shouldn't get a credit card however I believe it is one of the best ways to utilise an offset account
Yeah good point! Using a credit card wisely can indeed be an effective strategy to maximise the benefits of an offset account. By using a credit card for your daily expenses and keeping as much money as possible in your offset account, you can reduce the amount of interest you pay on your home loan. This is because the money in the offset account is effectively 'offset' against your home loan balance, leading to interest being calculated on a lower amount.
However, it's crucial to manage this approach carefully to avoid the pitfalls of accruing credit card debt. Always ensure you can pay off the credit card balance in full each month to avoid interest charges, which can quickly outweigh the benefits of the interest saved through the offset account.
It's a strategy that requires discipline and a good understanding of your own spending habits and financial capacity. If managed correctly, it can indeed be a powerful tool in reducing the overall interest paid on your mortgage and shortening the loan term.
Really great video with some helpful advice, thanks guys.
@Intrepid Cosmonaut thank you so so so so much for watching and for your comment! Glad you enjoyed it.
Thanks so much for such a informative video with always great explanation.
Glad it was helpful!
awesome video and explanation - thank you
Glad it was helpful!
For free home buying tools and resources check out www.huntergalloway.com.au/resources/
Absolutely loved this video. As a fellow Aussie real estate investor i really appreciate your efforts mate. Thank you so much for this valuable information Hunter Galloway:)
Much appreciated! 😊
Very helpful
Thanks so much for watching 🎉 Appreciate it.
Hey Guys, awesome video and helpful. I was wondering where the 8% rate came from and how I can achieve that to shave off 1.5 years? Thanks
Hey Akshay it was just a rate used for the calculations but you can have a play with this calculator to see how you can cut years off your mortgage www.huntergalloway.com.au/home-loan-extra-repayment-calculator/
great video. Is there an offset calculator which helps me know saving on interest on daily basis. The idea is to deposit the whole salary in offset account. Expense usually happens after 56 days when I pay my credit cards in full. So first 56 days I can save interest on full salary amount or 90% of salary amount. Is this idea applicable?
The only one which comes close to this is AMP's rapid repayment calculator which factors what's in your offset each month. Link blow :)
Hope it helps!
www.amp.com.au/calculators/rapidpaycalc/rapid_pay.html
Hi, I would like to ask if I have a 100% offset account and I put all my weekly income to my offset account does it still matter if I am on interest only loan or pay extra money to my loan? For example, if your home loan is $800k and you have $800k cash in your offsets account are you still be charged interest on your home loan account? Thanks
Hey Daniel, yeah we go through this scenario www.huntergalloway.com.au/offset-account/ check it out. thanks, Jayden.
That jump scare 😢😢😢😢😢