Money Matters Investment & Finance The benefits of an offset account
The benefits of an offset account
Saturday, 01 April 2006
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money_TN.jpgUnfortunately for most of us, a mortgage is the only path to home ownership. With that goes the large amount of interest due to the lengthy time it takes to pay it off. However there are ways to reduce the interest bill, with little effort on your part.

One simple way is the use of an offset account. It is a very efficient method of saving interest although it is unlikely to be promoted when you take out your mortgage. We all usually have a main bank account in which salary or practice income is deposited, and this account may have a small amount of cash which can grow considerably prior to paying BAS or other large bills.

This type of account usually earns minimal interest, but if set up as an offset account, it may offset dollar for dollar the same amount of interest that you are paying in your mortgage account on the daily balance. So for example, if you have an average of $10,000 per month in your cheque or savings account, you will get an offset in your linked mortgage account at the same rate as your mortgage, saving you about $700.00 of interest per year. If you have occasional large amounts deposited to your accounts, this could be much larger. This offset account should be available whether your mortgage is fixed or variable.

Another common circumstance is purchasing your first home. You may live in it for a number of years and then choose to keep it as an investment while you move on. But if you have paid down that loan, you may have lost a large amount of tax deductible debt and you would have to increase your non-deductible debt. This is very tax inefficient. An offset account will allow you to reduce the interest in your home loan but preserve the debt if you choose to keep it as an investment.

Some expertise, thought, and care in your finances can save you a lot of money in the long run. Make sure that is what you are getting when you are looking for finance.