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Here we talk about the best way to structure your home loan, whether it be for an Investment property or your principal place of residence.
There are a couple of common denominators in life:
1) You’re guaranteed to pass-away at some point
2) You will have a home loan at some point (unless you’re born into wealth and/or your parents are extremely generous). So considering the majority of us will have a home loan, lets at least ensure we’re making the bank work hard for that extra dollar.
A mortgage offset account is the perfect way to beat the banks. Best is, they offer these across the board with some very competitive bells and whistles. Take advantage of it!
What is it?
A mortgage offset account is a savings or transaction account linked to a borrower’s home loan. In short, the bank will look at the balance of this account and offset your home loan against the balance of your offset account. Reducing the interest you pay to the banks. Clear as mud? For example: You have a $500,000 loan and you have $50,000 in your offset account. The bank will only charge you interest on $450,000, not $500,000. Bargain!
By using an offset account, you are saving hundreds and thousands of dollars in interest repayments to the bank. You are also well on the path to cutting your total loan term. By running your life through these offset loan accounts i.e. having your salary paid into the account and accumulating your savings in the same account, you are effectively decreasing your interest payments to the bank.
You can reduce your tax bill by having your savings in an offset account opposed to a high interest savings account. As you know, the government will tax you on any interest earned from your savings account. So by shifting your savings to the offset account, you are effectively making the savings on your interest paid to the bank and saving on any tax to be paid to the government.
There are a number of features attached to offset accounts and every lender will be different. We suggest you look for the following key benefits:
• Ensure you choose a 100% offset account, not a partial offset. 100% offset is where the interest rates earned and paid are the same. The partial offset account is where the interest earned is a portion of the interest paid.
• It’s vitally important there’s no limit to the amount you can have in your offset account. You want to be able to use the money in this account as you would any other savings and/or transactional account. Ensure you have the ability to make electronic withdrawals and access the funds using an ATM. Make sure that any interest earned in your offset account will offset your mortgage interest.
• Finally, ensure that 100% of your offset account balance can be offset!
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