Make the Most of Your Offset Account
Thursday, November 23, 2006
How to make the most of your Offset Account.
What is an offset account?
An offset account is a bank account that is linked to your home loan.
Each dollar that is in your bank account is offsetting against the amount in your home loan. Interest is calculated daily (according to the loan balance), therefore each day you have money in your offset account, it is reducing the home loan balance…and also interest.
Eg. Home Loan = $300 000
Bank Account = $10 000
$300 000 minus $10 000 = $290 000
Therefore Interest is charged on $290 000 today.
Making the most of it
Most Home Loan packages with offset accounts include a credit card with no annual fee.
If you are diligent with credit card repayments, the credit card can enable you to retain more money in your offset account...hence reducing the interest charged to your home loan.
1. Use the credit card for the usual expenses
2. Keep your income in the offset account to reduce interest on your home loan
3. When the interest free period on the credit card is coming up, repay it using the money in your offset account. This can be done automatically and is referred to as a 'credit card sweep'.
Please note: This strategy requires budgeting to ensure expenses on the credit card remain less than the balance in your offset account.
How much are you saving?
This is the calculation to find out how much you are saving:
> Balance in offset account multiplied by current interest rate.
E.g. $5000 x 7% = $350 Saving per year (if $5000 was in the offset account every day)
Are you saving anything?
posted by Daniel Serratore @ 5:58 pm,
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The Author
Daniel Serratore
Daniel is heading up the new generation of Finance Brokers in Sydney. With his fresh approach and "can do" attitude, Daniel has developed relationships with key people within the Sydney lending market which enables him to source great deals for his clients. Daniel is big on customer service and has built his business purely by referrals from clients and other businesses. You can catch him via the email link on the top of this page
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This blog was developed as a resource for our clients and the general public. Although the internet will provide you with many lending providers, I am still to find a resource that shares ideas, tips and general useful info to assist borrowers make the right decisions. Hence this blog was born!
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