A mortgage offset account is a very handy financial planning tool.
However, many confuse the 100% mortgage offset account with the many “line of credit schemes” promoted by bank and non bank lenders. Line of credit, pay off your home loan quickly schemes can get you in a lot of financial strife if used incorrectly. Especially if you find it hard to control your spending.
On the other hand a 100% mortgage offset account attached to your home loan will allow you to have your cake and eat it, to coin a phrase.
There is no down side as many would have you think. There are healthy yearly tax benefits for good savers and a huge tax upside for those planning to accumulate properties and expand their wealth this way.
What are the mechanics of a mortgage offset account.
So how does an offset account work? A transaction account like your savings or check account is linked to your loan so that any balance in your transaction account is offset against the balance of your loan, so that you only accumulate debit interest on the net of the two. For example, if your home loan is $400,000 and you have a balance of $20,000 in your transaction account, you only pay interest on $380,000. Interest is usually calculated on a daily basis, so any amount you have in your transaction account will help reduce your interest liability. All this while having full access to your savings and not having to go cap in hand to the bank for a redraw if things get tight.
And get your home loan statements checked for errors before you move lenders. It will be easier for you to get a refund if you can have the threat of leaving, hanging over your lenders head.