Whether you’re looking to get started with your first investment property, or are well on your way to building your portfolio, chances are you’ve come across the term ‘offset account’. While many of us have heard of them, the question is whether we are truly maximising their value and ensuring that we’ve not paying unnecessary fees.
First, let’s look at exactly how an offset account works. An offset account is simply a savings account with your bank that is linked to your home or investment property loan. The balance of the savings in your offset account is reduced from your outstanding loan and the remainder is what you pay interest on. Here it is below in a simple diagram:
Simply put, the more that’s in your offset account, the less interest you’ll be charged.
Now that we know what it is, how can we ensure that we’re making the most of the benefits of an offset account:
- Park your cash savings in your offset account
It can be a sensible idea to hold your emergency fund (3 – 6 months of your monthly expenses), as well as any cash savings in your offset account to reduce the interest you’re paying on your home loan. Chances are, you’ll get a greater bang for your buck by holding the cash in an offset account than a term deposit.
- Direct your salary into your offset account
How many offset accounts is enough? Many lenders that we work with will allow our clients to hold multiple offset accounts against the one loan without extra fees. It can be an excellent strategy to have your salary and any other regular payments directed to your offset account to reduce interest whenever possible.
- Offset your fixed rate loan
With interest rates in Australia close to record lows, you may be considering fixing your interest rates. Before you do, consider whether your lender will allow you to offset any of your interest with an offset account against a fixed rate loan. Many of the lenders that we work with will allow our clients to do so, which can provide both interest savings and peace of mind with regard to future interest rate movements.
An offset account can be a simple strategy for you to maintain flexibility with your cash, while keeping interest payments lower than they would otherwise be.
Feel free to reach out to us to discuss how you can set up the optimal offset account strategy for your own situation today. Click here to contact us directly.
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