Many people have an offset account linked to there home loan however some still don’t use it to full effect.
Your offset account is a normal transaction account which can help you save interest over the life of your home loan. It does not earn interest like other transactional accounts.
Check out our pointers below to makes sure you are using your offset to full effect.
1. Pay your income into your offset account.
Your lender will make money off you by the interest they charge monthly. The lender calculates your interest daily. If your income goes into your offset account as soon as your employer pays, then you’re going to maximise the interest saving as soon your income is deposited into the account.
2. Set up your direct debits strategically.
The first thing we can do is review your existing home loan and make sure the product and features are still working for you. The product you have will determine what you can do and how much will change as a res
We know that many people use monthly direct debits to pay their fixed living expenses. Whilst many of us don’t like having to contact these providers, if you can ask them to debit your account at a specific time of the month then your savings will sit in your offset account longer, therefore you will keep your offset account balance higher and save more interest on your home loan.
For example, if you get paid monthly and your monthly pay was credited to your account on the 1st day of every month or thereabouts, ask your provider to debit the monthly amount on the 28th of every month. This way your income sits in your account for longer and you save more interest along the way.
3. No tax payable on savings held in your offset account.
If you have a savings account where your money is held, your money may be earning interest. If it is, you must pay tax on any interest earned. By having money in an offset account, this money is not earning interest it is saving you interest on the home loan therefore you are not paying any additional tax.
4. Check if your lender has the option for multiple offset accounts.
Not all lenders offer this however if your lender does then this may help you budget your money better. Multiple offset accounts are simply additional offset accounts that can be opened and the money in the 2nd or 3rd account will still save you interest on the home loan. This becomes handy if you’re saving for something particular and you want to see this money in a separate account
5. Make sure your offset account is being used 100%.
Most offset accounts are 100% offset. This means that 100% of the money in the offset account is saving interest on your home loan. Some lenders offer partial offset which means not all of your money is being used to offset your home loan interest.