Everyone wants to find quick ways to save money, but sometimes it takes a little more time to save money in the long run.
Using an offset account can help you save money, reduce the time it takes for you to pay off a loan, and help protect yourself against rising interest rates and having to pay more in the long run.
Keep reading this guide to learn the ins and outs of using an offset account to pay your mortgage and save money in the long run.
What is an Offset Account?
A mortgage offset account is attached to your home loan as a savings account. It is essentially like a regular savings account where you can deposit and withdraw money, but it also can come with a credit card and it pays off your interest at the same rate as your home loan. This will help you make big savings towards your mortgage.
These accounts are tax-free unlike how you would have to pay taxes on a regular income account. Making it another way to save you money.
The way it works is that the money in your mortgage offset account is deducted daily form your loan balance. This makes your monthly mortgage payments less expensive rather than if you did not have the account.
If you do not have a lump sum to deposit, then you can deposit your salary every month and use it as a regular account. You can withdraw money and add money while saving money towards your mortgage.
How Does It Work?
It all sounds good in theory, but let’s break it down and see exactly how an offset account could help you save money on your home loan.
Let’s say your home loan is $200,000 but you have $15,000 in your offset account. You will only be paying interest on the difference which is $185,000. An offset account helps you save money in the long run.
This all works because you kept the money you already had in the right account.
But what if you have an emergency where you would need to access those funds? You can! Although, it’s better to keep more money in your account because that’s what is keeping you from paying more interest.
You can still deposit and withdraw money like a normal bank account but it is much better to leave as much money as you can in your mortgage offset account.
Learn more about offset accounts from Hunter Galloway.
Let’s Get an Offset Account
Now that you’ve learned how great a mortgage offset account can be we need to discuss what to look for when choosing your offset account.
Look for an account that doesn’t have a balance limit. This is what we talked about that your offset account is just like a regular savings account where you can keep putting money into it as time goes by. The more money you have in the offset account, then the more money you are able to save.
You also will want an account that has an equal interest rate as your mortgage. This rate needs to move with your home loan so you can get as many savings as possible.
We also mentioned that you can get a credit card with your mortgage offset account, but make sure that this credit card has a low-interest rate. Often offset accounts do offer credit cards with much lower interest rates than a regular credit card. Getting a credit card could be particularly useful if you need to do home renovations.
After reading our guide on the ins and outs of an offset account, the decision should be simple. Go ahead and get a mortgage offset account to help you save money on your home loan.
If you liked this article on how to save money with an offset account, then check out the other articles and learn even more tips and tricks on how to save money.