Want to slash the your home-loan by using your savings to reduce the principal amount owing, then an offset account facility could be for you. To find out more about different types of home loans [pdf link] contact the Mortgage Industry Association.
What is an Offset Account?
An Offset Account is a saving account tied to your loan account that enables you to use your saving account balance to reduce the amount owed towards your loan.
Advantages of an Offset Account?
The biggest advantage of an offset account is that it enables you to radically reduce how much you owe by cutting the time it takes to pay off a home-loan. It often suitable for business owners who have irregular cashflows, that can take advantage of the lower interest. This is often a great trade off when higher interest needs to be charged on low doc or no doc home loans.
Offset accounts reduce the compound interest that drastically increases the size of loan payments, and it is through incrementally reducing the principal through the offset account that significant savings can be afforded.
Also, by utilising interest accrued to reduce the size of principal the user of an offset account is able to avoid paying any tax on interest earned on savings.
Types of Offset Account
eChoice offers two types offset account: - the 100% offset account and the partial offset account. The only difference between these is determined by just how much of their savings the client is willing to commit towards reducing the principal.
An example of an Offset Account
Pete and Wendy have a $300,000 mortgage and have a 100% offset account with total savings of $30,000.
This means that Pete and Wendy owe $300,000 towards the principal amount BUT will only have to pay interest on $270,000 of this as the offset reduces the principle upon by $30,000.
To find out more about how extra payments will reduce the duration and magnitude of your loan visit eChoice’s extra payments calculator.
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