How can a Mortgage Offset Account Help Me?
With the low interest rates over the last year or so, many home mortgage holders have paid more off their mortgage than they had been required by their lenders. Some would now like to access that over-payment amount. However, redrawing from your mortgage in times of need can be complicated, time consuming and costly. A better alternative to overpaying your mortgage is to attach a mortgage offset account to your home loan.
A mortgage offset account is simply a savings account linked to your loan account. An offset account works like a regular savings account, where you deposit your pay and other income and can draw out what you need when you need. The balance in your offset savings account is offset against the amount owing on the mortgage. With a full offset account the ‘notional’ interest on savings is the same rate as the linked mortgage. Unlike normal bank interest, there is no tax to be paid on the offset of interest. You have saved on both loan interest and tax.
Over time, savings in your offset account can help you to pay off your loan sooner or help you build up savings equity that you can draw on much more easily than redrawing from your mortgage. There are also other benefits of using an offset account.
How it works illustration:
Richard and Yolanda have a $400,000 mortgage and have saved $10,000 in their linked 100 per cent offset account.
* The principal on a $400,000 mortgage is reduced by the $10,000 offset account to $390,000.
* As a result interest accumulates only on the $390,000 balance of the mortgage.
If your current lender will not allow you to have a 100% mortgage offset account attached to your loan, refinance now. Your current lender is behind the times and trying to rip you off by offering a inferior product choice.
If you don’t have a broker try echoice.com.au They provide me with excellent ongoing service for one of my loans.