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HOW TO REDUCE YOUR HOME LOAN BALANANCE AND PAY LESS INTEREST, WITH AN OFFSET ACCOUNT

Like everything in life, happiness is often found in balance. Paying off your mortgage early is no exception. The question is how? Over the years there has been a stigma that paying off your mortgage early, sounds too good to be true. However, paying off your mortgage early is closer and easier than you think, with a little help from a Mortgage Offset Account. Let’s face it, when you have a mortgage you need all the help you can get. 
What is a Mortgage Offset Account?
An offset account is similar to an all in one account. With such account the borrower takes out a home loan, opens a savings account and links the account to the loan.The money in your linked account will have the same interest rate that is charged on your home loan. This amount is then offset daily against your loan balance, meaning that the loan pretends that you have paid the balance of the offset account off your loan. While also reducing the amount of mortgage interest charged.
For example: You have a loan balance of $500,000 where interest is calculated on a daily basis and charged to the account each month on that full amount. If you have a linked offset account of $10,000 that money acts to reduce the money of your home loan. Because of your offset account, you will only be charged interest against $490,000 ($500,000 – $10,000).
The Benefits
– An offset account is a good tool that can help you cut thousands of dollars off your home loan. In the same breath, it will also shave time off the life of your home loan. And the best thing is you don’t need a great deal of savings for an offset account to be effective. An offset account works just as well if you only have your salary deposited into the account every payday. However, even maintaining a balance of a thousand dollars can save you thousands in interest.

  • For example, assume you have an average balance of $1,000 in your offset account, on that $500,000 mortgage over 30 years (at an average variable interest of 5.25%), you’d save $3,806.52 in interest and cut your mortgage life by 1 month. 
  • For those of you that are slightly better at saving, assume you have an average balance of $20,000, on that $500,000 mortgage over 30 years (at an average variable interest of 5.25%), you’d save $69,805 in interest as well as shave 2 years and 1 month off your mortgage. Therefore, the more you deposit into your offset account the greater the opportunity you have to save on interest and time. 

– Another main benefit – the money deposited into the offset account can be withdrawn at any time. Offering major tax advantages for borrowers to pay off owner-occupied properties (which don’t offer tax deductions on interest).
– Lastly, a mortgage offset account carries no associated tax burdens. Unlike conventional savings accounts where the interest accrued is added to taxable income, an offset account helps you reduce your tax bill, by offsetting taxable income against interest paid on mortgage repayments. 
In conclusion, offset accounts are real and help real people save money and cut time off their mortgage, regardless of how much you deposit into them. 
For more information about offset accounts, to find a great value offset account with our loan products, or to book an obligation free appointment, call our Broker Rudy Tahiri on 0414 856 713 or email amie@cupidfinanceaustralia.com.au

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