The Benefits of an Offset Account and Using Tricks
June 23, 2015
The operation of an offset account
The bank will open a loan account for you when you get your loans. Assuming you have $300,000 loan, the loan account balance is – $300,000. If you open an offset account (equals to a deposit account, no management fee) and then you deposit $100,000 in it, then the interest you have to pay is the interest of $300,000-$100,000 = $200,000. For example, next day you deposit $200,000 into your offset account, then the interest you need to pay is $300,000-$300,000 = $0, which means no interest.
Offset account is calculated daily (as the amount in the offset account may not be the same every day) if you would like to pay both principal and interest, you can choose to pay every week, every two weeks or to pay every month. If you choose to pay interest only then you can only pay every month.
In fact, the nature of the offset account is same with savings account, you can deposit money also you can withdraw money at any time. But the difference is that it can affects the interest.
The benefits of Offset Account basically are three points,
- Saving interest at the greatest extent
You can deposit salary and other income into the offset account directly, so in the day begins to offset the interest on loans, which can offset interest at the greatest extent.
- Financial liberalisation at the greatest extent
Offset Account can be free to access at any time. You can deposit money also you can withdraw money at any time. As the housing loan interest rates is much lower to the car loans and business loans, so you can lend money as much as possible out of the house loans to buy a car or a business. This will make it much easier to manage your investment and business, because it can boost your cash flow.
- The potential tax benefits
Tax law in Australia stipulates that if your main residence turns to investment, your loan interest is generated in the Balance in the account can be used to offset tax. So if you don’t use Offset Account, your spare money in the Account can only reduce the balance of the loan in the Account, which leads to the deductible tax amount becomes less. But if you deposit extra money in Offset Account, you will not have these problems, you can transfer money to your Offset Account, which can offset interest all the same.
The disadvantage of offset account is to pay an annual fee. Annual fee for each bank is different, ranging from $180-$395, but no matter how many loans in the same package, annual fee is to pay once a year, to put it simple is whether you buy one house or four or five. You don’t need to pay the loan application fee if you pay the annual fee; general loan application fee is $500-$600.