An Offset Account can be a very useful tool to help you pay off your loan faster and reduce the amount of interest you pay on your home loan.
This short video will demonstrate the benefits of an Offset Account and how to make it work for you. You will see the benefits of saving your money in an Offset Account compared to saving in a bank account where you pay tax on the interest you earn.
Example; Assume you have a $300,000 home loan and $20,000 in your Offset Account. Each day that the bank calculates the interest on your home loan, it will deduct your $20,000 savings from the home loan balance and calculate interest as if your loan balance was $280,000.
If you assume you are paying 5% interest on your home loan, your Offset Account balance will save you $1000 per year in interest.
Compare this with having $20,000 in a savings account where you earned 2.5% interest. You will earn $500 per year interest. You then pay tax on the interest at your marginal rate. If your marginal rate is 37%, you loose $185 in tax. Your net return is $315 per year.
As you can see, accumulating your savings in an Offset Account gives you almost three times better return on your money than keeping your funds in a savings account.
If you are concentrating savings for different purposes in the same Offset Account, the video will show you an easy way to keep track of your Offset Account funds using a simple Excel spreadsheet. That way you don’t loose track of your different savings account balances.
If you want further information on how an Offset Account can work for you, please contact Paul Gilhooly at paul@halogenhomeloans.com.au
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