Many lenders offer an offset account with their home loan products. However, many people do not understand how they can be used effectively – to both reduce the interest that they pay on their loan and to help their cashflow each month.
Offset accounts are savings account linked to your home loan account. Every $1 deposited into the offset effectively reduces (or offsets) the balance of the loan that interest is charged on, by $1. This may be one way to reduce your loan repayments, and fix your cash flow.
For example, say you have a $300,000 home loan. If you deposit $5000 into the offset, only a loan of $295,000 will be charged interest.
Utilising the offset for even a small period of time can add up to good savings in interest over the life of the loan.
Many people have multiple savings accounts to help with their household budgeting. For example, they may have the following accounts:
However, they only use one account as the offset account – usually their daily living account . This account goes up and down in line with their salary deposits and expense withdrawals. Unfortunately, this account is usually the one with the lowest deposit. Hence it’s the lease effective in terms of reducing their home loan balance.
Some lenders will let you have all of your savings accounts set up as offset accounts against your home loan. This means every dollar you have in a savings account is working hard to reduce your mortgage interest. Longer term this means more money back in your pocket & not the banks!
Milestone Lending can help you determine if this is an appropriate strategy, and which lenders offer multiple offset accounts. Call us today to discuss how we can help you fix your cash flow and reduce your home loan interest.
