An offset account is a must when you have a mortgage. Every decent lender should offer you an offset account. One thing you need to make sure is that it is a 100% offset account.
“My wife and I have 6 offset accounts”
This suits us as we can track where all our money is and each account has a set purpose. The reason we created our daughters’ accounts as offset is so that we can track the money easily on our internet banking and having offset our home loan, this means it’s working harder than a 2% interest rate.
The record for offsets for one of our clients is 14! We’re not saying you need to go this far as we all want our banking to be simple. However, this couple were both self-employed and sole traders, so it helped in their case. They both have reasons for the different offset accounts in their business, plus joint accounts for their family.
Let’s dig a little deeper as to what this means….
Everyone has a day-to-day transaction account where your salary goes in, you pay bills and withdraw cash from the ATM. Depending on which lender you’re with, this can be your 100% offset account. Put simply, an offset account is a day to day account that offsets the interest payable on your mortgage depending on the balance.
There is no minimum amount required to be in the offset account, if you have $1 in there, it will offset $1 of your mortgage. It’s calculated on a daily basis as well, which is why it’s wise to put any excess cash in this offset account.
I always tell people to put all their cash in their 100% offset account. I’m yet to see any high interest savings account perform better than the savings you can make through the use of an offset account. Reason being, lenders fund mortgages from savings accounts so interest rates on savings accounts are always lower than mortgage rates. Also, you pay tax on any interest you earn in a savings account, this is not the case with a 100% offset account. You aren’t technically earning interest with an offset account, you are offsetting the interest of your loan, which is far better from a savings point of view and a tax point of view.
Damien Roylance, Director & Finance Broker
If you would like to discuss offset accounts in more detail or have any other queries feel free to send us an email at firstname.lastname@example.org or call us on 03 9421 1651