Posted by LLL
For some families, offset accounts can be very effective in reducing the amount of interest paid on their mortgage. Offset accounts work by offsetting the amount of money within the accounts against the mortgage, in essence reducing the principal amount owing. For example, if you have $10,000 in your offset account, and your mortgage is $400,000, you’ll only be paying interest on $390,000.
The key to effectively using an offset account, is being able to manage a credit card without overspending. Then, an offset account (or multiple offset accounts) can hold all actual funds available, and all spending is on acredit card. If an automatic payment is set up each month to pay off the entire amount on the credit card, no credit card interest will be charged. The key is to make sure you don’t spend more on your credit card than you have in your offset accounts!
Offset accounts are normally dollar for dollar, meaning every dollar in the offset account brings down the interest paid on the principal by a dollar. Some offset accounts cost money to maintain, while others are free. Check with your bank to see what is available to you.
As the expenses are put onto the credit card over the month, money can be transferred from one or multiple accounts into the main offset account, from where the credit card is paid off each month. By ensuring that each transaction has been “paid” for into the offset account, you can be sure that your credit card will be paid in full each month, and you won’t spend money you don’t have.
For more information on offset accounts, talk to your bank or check out the ASIC MoneySmart website.
This advice is prepared without consideration of your objectives, financial situation or needs. Before acting, please consider if this advice is appropriate to your circumstances.