How an offset account can help pay your home off faster

Anyone with a mortgage will know that the goal is to pay it off as early as possible in order to pay as little interest as possible.

There are many ways you can reduce your debt, including depositing lump sums when you can. One of the best ways however is to open an offset account.

What is an offset account?

An offset account works like a normal transaction account except that it is linked to your home loan account. This means it allows you to reduce your loan account more quickly because any money in your offset account is offset against the balance of your home loan. This reduces the amount on which interest is calculated.

Because interest on your home loan is calculated daily, the more money you can keep in your offset account, the more interest you will reduce.

Here are some tips to make the most of an offset account:

1. Have your salary paid straight into your offset account if you can.
2. Refrain from dipping into your offset account as much as possible.
3. Pay day to pay expenses using another transaction account or a credit card. If using a credit card, ensure you pay it off in full before the due date to avoid paying interest.
4. Consider setting up more than one offset account. Doing so gives you options for managing your finances the way you want to. For instance, you could have separate offset accounts for savings, bills, holidays etc. to help make budgeting and saving for different things easier.
5. Check the conditions of your home loan with your lender as some financial institutions or loan types only permit you to have some of your offset account’s balance offset against your loan. Some financial institutions also charge a monthly fee for offset accounts, while others are free of charge.

At the end of the day, anything you can do to reduce the amount of interest you pay on your mortgage will benefit you in the long term.

Post by ShelMarkblog 22 Feb 2019 0