Offset accounts were once considered so sophisticated they were only offered to professionals such as doctors and solicitors. Now, pretty-much every lender offers offset accounts, thereby shaving countless dollars and years from the life of a loan.
And as offsets have become more-and-more standard, the banks have had to produce innovative variations to offsets to keep your business.
An offset account is a normal bank account linked to your mortgage.
The money (or credit) in your offset works against your loan balance, and this will reduce the mortgage interest charged accordingly. So you might have a $200,000 loan and $15,000 in your offset account. Because of your offset account, you will only be charged interest against $185,000.
By having a decent amount of money in your offset account, you can effectively cut years and thousands of dollars from your home loan. They also work just as well if you have your salary deposited into a standard savings account every payday, so you don′t need a huge amount.
This offset arrangement is also completely tax free.
As offsets have become more-and-more standard, banks have offered us more and we have demanded more. Here are some examples of recent changes:
Some banks offer offsets within offsets which allows us to ring-fence all our savings while they are working against the home loan. These ‘sub-offsets’ can come with their own BSB and account number and are typically used where people are saving for, say, a holiday or a wedding but want to pay down the loan asap.
I even have one client who allocated his sons their own ‘sub-offsets’ for their pocket money! The kids had a cheap bank account they could use (complete with an ATM card) while the Dad benefited from their savings offsetting mortgage repayments.
Many people choose to deposit their salary into an offset for as long as possible; pay for everything on a credit card; benefit from its interest free period; then pay-off the card from the offset.
As Australians have become more accustomed to offset accounts, there are now lenders that offer offset accounts to business customers.
Offset Accounts normally comes hefty fees, however some lenders are now offering them free-of-charge. Your broker knows which lenders have the best offsets with the lowest fees.
Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs. Click for more detail regarding this disclaimer.