You might have heard about an offset account, which is a transaction account that is linked to your home loan, so what does it actually do? If you have a variable rate loan account, and an annual package fee it is likely your bank offsets and offset account – this is a simple tool that allows you to reduce the amount of interest you pay and get rid of that loan faster!
For example: If you’ve got an offset account that has $50k and have a home loan that has $100k in it, you only pay interest on the difference.
HOME LOAN – OFFSET = INTEREST PAID ON DIFFERENCE
$100k – $50k = $50k
Therefore you only pay interest on $50,000. The main advantage of using an offset is that:
- Assuming you have a variable loan account you can use 100% offsets to place any savings you have against your loan, and reduce the interest payable.
- As per the above example you get to pay the interest on the difference between your home loan balance and your offset account and by keeping the average balance high you can possibly save more money over time.
- You can have your wage or salary paid directly into your offset account which will again help accumulate more savings automatically over time!
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