Using Offset Accounts Like a Pro.

There are lots of smart things you can do to help pay off your mortgage faster. One way is to be strategic with the way you do your everyday banking by switching to an offset account.

What is an offset account?

An offset account can help you reduce the interest you pay on your Home Loan. It works like any normal transaction account, except it’s linked to your home loan. So any money that you have in your offset transaction account is ‘offset’ against the balance in your home loan account, reducing the amount on which interest is calculated on that day. Interest on your Home Loan balance is calculated daily, so the more money you can keep in your offset account each day, the more your Home Loan interest will be reduced.

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Using offset accounts like a pro

  • It might sound obvious, but the most important thing to do is keep as much money as possible in your offset account.
  • Get your salary paid straight into the offset and it will be offset against your home loan on the day you get paid.
  • Use a credit card for daily expenses. This way you can leave all of your money in your offset account so you get charged less interest on your Home Loan. To avoid being charged interest on the credit card, make sure you pay it out in full before the due date. Or at least pay the minimum payment to avoid any late payment fees. You don’t want to cancel out any potential home loan interest savings with credit card fees!
  • Often, you can have more than one offset account, which gives you options for managing your finances the way you want to.
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What to watch out for

  • If you’re using a credit card be careful. Over-spending on your card can lead to financial difficulty, and not paying it off on time will incur a much higher interest rate on your card compared to this interest you pay on your home loan– which will cancel out the benefits of your offset account. You should also check the amount you pay in credit card fees, because again, those fees may be more than the benefits the card offers for your offset.
  • Make sure you check the conditions of your loan. Depending on the loan type (variable vs fixed interest rates) and the provider, you might only be able to have some of your offset account’s balance offset against your loan. Instead of 100% of the money in your account offsetting your home loan, maybe only 40% of the balance is taken into account. Generally fixed rate mortgages are less likely to offer a 100% offset.
  • Check your home loan terms and conditions. Offset accounts are free for some home loan packages, but for others you have to pay a monthly fee.

What else to consider:

  • If you consolidate into your home loan your other debts will be added on to the Home Loan, so be aware that your Home Loan balance will increase.
  • Rolling other debts into your Home Loan will likely affect your Loan to Value Ratio (LVR). This could end up changing your interest rate.
  • You should make sure that your debt consolidation doesn’t drop you below a 20% deposit, otherwise you will need to pay Lenders Mortgage Insurance (LMI).
  • If you’ve already begun paying your mortgage and you then consolidate your personal debt into your mortgage, any equity you may have gained in your property will decrease.
  • Every situation is different, so make sure you explore what’s best for you personally.  

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Things you should know 

The information contained in this article is of a general nature and is not intended to be nor should it be considered as professional advice. You should not act on the basis of anything contained in this article without first obtaining specific professional advice. Also to the extent permitted by law, Bankwest, a division of Commonwealth Bank of Australia ABN 48 123 123 124 AFSL/Australian credit licence 234945, its related bodies corporate, employees and contractors accept no liability or responsibility to any persons for any loss which may be incurred or suffered as a result of acting on or refraining from acting as a result of anything contained in this article. For offset transaction accounts you should consider the PDS and whether the product is right for you. Terms of Use apply. Bankwest Easy Alerts is currently supported on iOS  9 and Android 5.0  devices and above. Bankwest Easy Alerts is not available on tablets and  Windows devices.