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An “Offset” account is a savings account which is attached to your Home Loan Account.

It works by charging you interest only on the difference between the limit of your Home Loan Account and the Balance in your Savings Account(s).

For example, if you have a loan of $750,000, and a Savings of $50,000 your interest would be based on a $700,000 loan even though your total loan is $750,000. The amount you save over time compounds because of the fact that interest is calculated daily and it is only charged based on the frequency of your repayment (weekly, fortnightly and monthly).

To maximize the benefits here, you can also:

• Put all your income into the Offset Account
  • Crediting your Salary works in a similar way by allowing you to pay your salary directly into your home loan account, however you can then re-draw the funds out as you need them to pay your day-to-day expenses. Because the interest is calculated daily, your interest costs are dramatically reduced by doing this as you don’t spend all your income on the first day of the month
• Use an Interest Free Credit Card
  • Let’s say you had your mortgage repayments on a monthly basis, you would get paid on the 1^st of the month, and leave your income in there until the end of the month.
  • During the month you’d use the credit card to spend for your day to day expenses.
  • At the end of the month you would take the funds from your Offset Account and Repay your credit card, incurring no interest on the credit card, and then minimizing the interest on your Home Loan. As you are spending less than you are making, the amount in your Offset Account accumulates over time, and your interest costs reduce.
• Keep as much money as possible in your Offset Account for as long as possible, e.g.:
  • Pay bills only when they are due, not early
  • Pay off credit card on the last day of the month
• Put any additional income into the Offset Account
  • Bonusses, Commission, etc.
  • Sale of any personal/private goods, etc.

These accounts are not for everyone. If you are not disciplined with your money and/or do not have any savings etc. In addition, if you have other debts (e.g. HP’s, credit cards bearing interest, etc.) you should pay these off first.

Another variation of the Offset Option is a Revolving Credit – where you can also do this – however it is one account instead of multiple. It works much like a large overdraft.

If you’d like to find out how to reduce your home loan faster – get in touch!