Unless you have a bachelor degree in finance, really smart friends or a great financial advisor, you may never learn all the tricks of the trade.
For instance, did you know that offset accounts reward the conscious saver by saving you thousands in interest charges and shaving years off your loan term?
What is an offset account?
An offset account is a transaction account that is linked to your home loan. The credit balance amount that’s in your transaction account is offset daily against your loan balance to reduce the interest you pay on your home loan.
For example, if your outstanding home loan amount is $300,000 and you have $50,000 sitting in your linked transaction account, you will only pay interest on $250,000 of your home loan amount. This dramatically cuts down your interest rate repayments and hence, can significantly shorten your mortgage loan term.
What are the tax benefits of offset accounts?
As well as cutting down your interest rate repayments and term loan, you can also save on tax you would have had to pay on interest you would normally earn from money sitting in your savings account.
Are there any extra account fees and charges?
Depending on your lender, there are extra fees and higher interest charges that apply to offset accounts. In order for you to get the most out of an offset account you need to make sure you have a substantial amount of savings in the offset account to produce interest savings and reap the benefits.