When it comes to managing your mortgage, one of the most effective financial tools at your disposal is the mortgage offset account. A mortgage offset account can help you save thousands of dollars in interest payments and potentially shave years off your mortgage term.
What is a mortgage offset account?
A mortgage offset account is a savings or transaction account linked to your home loan. The key feature of this account is that the balance in the offset account is offset against your outstanding mortgage principal when calculating interest. This means you only pay interest on the difference between your mortgage balance and the balance in your offset account.
How Does It Work?
Let's say you have a mortgage of $300,000, and you have $50,000 in your offset account. Instead of paying interest on the full $300,000, you'll only pay interest on $250,000 ($300,000 - $50,000). This reduces the interest expense, ultimately allowing you to pay off your mortgage faster.
How to maximise your offset
Maintain a High Balance: The more money you keep in your offset account, the greater the interest savings. Consider using your savings, bonuses, or windfalls to bolster your offset account. Every dollar in the account is working to reduce your interest payments.
Consolidate Your Finances: If you have multiple accounts, consolidate them into your offset account. This way, you'll maximise the balance and reduce interest costs effectively.
Salary Deposits: Arrange with your employer to have your salary deposited directly into your offset account. This ensures that your income immediately starts reducing your interest costs.
Consider a credit card: If you use a credit card for your regular expenses and pay it off in full each month before any interest is charged, you will have the added benefit of your money sitting in the offset longer, up to the day of the card repayment. You may also get an added benefit of credit card points, depending on your credit card features.
Use Windfalls Wisely: If you receive a tax refund, bonus, or any unexpected financial windfall, depositing it straight into your offset is a great way to put extra money to work in reducing your mortgage interest.
A mortgage offset account is a powerful tool that can help you save money and pay off your mortgage faster. By maintaining a high balance, consolidating your finances, and making strategic financial decisions, you can maximize the benefits of your mortgage offset account. Remember that while this tool is valuable, it's just one part of a comprehensive financial strategy. If you would like to understand more about how to benefit from an offset please get in touch.