Before we explore some of our community’s frequently asked questions, let’s dive in to the basics.
What is an Offset Account? How Do Offset Accounts Work?
Simply put, offset accounts are separate accounts that attach to your home loan. As interest is calculated daily, any money sitting in your offset account on a given day, reduces the amount of interest you pay on your loan. It offsets your payments.
For example, if you have a $400,000 mortgage and $50,000 in your offset account, you will pay interest on $350,000 ($400,000-$50,000). Seems simple enough, right? But property owners don’t just love offset accounts because they reduce the interest expense on their loans. There are other benefits too!
What are the Benefits of an Offset Account?
- You can arrange for your income to go into your offset account and for all your expenses to come out. This means that you can capitalise on every dollar you receive.
- At times, we recommend arranging for your pay to go into your offset account at the start of the month and using a credit card for all your expenses over the month. This way your money can actively reduce the interest you pay. Importantly, for this strategy to work, you must remember to clear the credit card balance at the end of the month, to avoid paying interest on it.
- Do you want to buy a new home and convert your existing property into an investment, now or in the future? You can save your deposit in your offset account without reducing the loan against your current home. When you do purchase a new home and turn your current home into an investment property, the high debt level can increase the tax deductibility relating to that property.
- Funds saved in an offset account are generally easier and cheaper to access than funds deposited directly into your loan account (and later redrawn).
What Are the Considerations of an Offset Account?
Whilst offset accounts are undoubtedly a valuable tool to reduce your interest payments and keep more of your money, there are some considerations you should be aware of before you use one.
- For some products, the offset may not be 100%. In this case, only a limited percentage of the funds in your account will actually offset your loan balance. The Rise High team can help you avoid this mistake.
- Some lenders charge a slightly higher interest rate or additional fees to provide an offset facility. Nevertheless, we work with over 70 lenders and can help find your perfect match.
- Discipline is a must! As it’s fairly easy to access money in your offset account, it’s important to spend the money wisely and retain as much as possible in the account.
Great! Now you’re familiar with what offset accounts are, as well as some benefits and considerations associated with them. Let’s move into our community’s questions!
When is it a good idea to use an offset account, and when is it not?
We believe that offset accounts are generally a good idea if you have a fairly healthy savings balance. However, some members of our community prefer their loans to be as simple as possible, with no additional fees. Ultimately, whether or not an offset account is the right choice for you depends on your circumstances and goals. Our team would be happy to go through this with you and help create an ideal plan.
What is the difference between a savings, redraw and offset account?
As you know, offset accounts are transaction accounts linked to your home loan. They reduce the interest you pay on your loan. But many people wonder how they differ from redraw and savings accounts.
- A redraw facility allows you to make additional repayments against your home loan. But there may be some limitations as to how much you can withdraw at once and how quickly you have access to those funds. More on this here.
- A savings account enables you to earn interest on the amount you have in the account. However, you won’t be able to reduce the interest you’re paying against your loan.
What does an offset account cost?
The cost of an offset account varies across banks. Some have a once-off annual package fee, whilst others set monthly fees. We do have some lenders that offer fee-free offset accounts, and would love to help you connect with a lender whose service aligns with your goals.
How many offset accounts can I link to my home loan?
Like the above question, this also depends on the bank. Fortunately, we proudly have access to over 70 lenders, and can help you organise as many offset accounts as is required.
Can I access the money in my offset account at any time?
Absolutely! This account works like a transaction account so you can withdraw funds and transfer them within or outside of your accounts.
Can I link an offset account to an investment loan?
Yes, you can! Nevertheless, typically, if you have both an owner-occupied and investment loan, we encourage you to put surplus funds towards your owner-occupied one. This is simply because that loan doesn’t give you any tax benefits.
How can Rise High help me set up an offset account?
At Rise High, we understand that your circumstances and goals are unique. That’s why we would love to have a chat with you, so we can get to know exactly how an offset account can fit perfectly in your property journey.
If you’d like our support in setting up an offset account, reach out to our team today!
Still have questions? That’s totally OK! Our team would love to help you in any way we can so don’t hesitate to contact us.
