Offset Account Home Loans are very similar to all-in-one loans, rather than putting all your salary and other income into your loan, it goes into a transaction account that is directly linked to your home loan. Any balance in the offset account is ‘offset’ against your home loan. This reduces the amount of interest you have to repay, making your money work harder for you.
So long as your home loan interest rate is higher than your savings account interest rate, you’re generally better off using offset account home loans, and not earning the interest. That’s because you’re saving more money by paying less interest on your home loan, compared to the interest you’d be earning on your high interest savings account.
Don’t forget that you’d probably have to pay tax on any interest that you earned in a savings account too. But because offset account home loans don’t earn any interest, you won’t pay this tax by using an offset transaction account.
An offset account is a linked transaction account that has the usual ATM, EFTPOS, Phone Banking, Internet Banking and cheque book access, by depositing all your income into the offset transaction account the amount of interest that you pay for your home loan will be decreased.
Usually home loan interest is calculated daily, based on the balance of your home loan each day. At the end of each month the lender will total up the interest from each day in that month (and charge it all at once). This means that every dollar you have in your offset account saves you interest every day that it’s there. And, whenever you need to access your money it is always available to you in the usual ways, such as an ATM or online.
Offset Account Home Loans – ensure you get the most from your account
- Have your salary deposited into your offset account so that the amount of interest you pay will be less
- If you have a credit card, make your day-to-day purchases with the card and pay the card in full on the due date, thereby retaining as much of your cash as possible in the offset transaction account for as long as possible
- Ensure that you have sufficient funds in the offset transaction account to make your home loan and credit card repayments
- You can redraw from your home loan account to your offset transaction account if needed
- If you don’t have a credit card or prefer to only use a credit card for one-off purchases use your account for transactions with your debit card including ATM, EFTPOS, internet banking, cheque book and BPAY
- Make your Home Loan repayments from the offset transaction account
So, if you’re hoping to get debt-free as fast as possible, offset account home loans can be one of the most valuable facilities at your disposal, establishing one of these accounts alongside your home loan will help you to save money in the long run on your repayments, with these savings helping you to further your own living situation and work towards helping you generate as much wealth as possible.