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A mortgage offset account can offer the ideal combination of easy access to cash savings while helping you pay off your home loan sooner. Our friends at ME Bank explain.

An offset account is an everyday account linked to your home loan. Instead of being paid separate interest on the linked account, the balance is deducted from (or ‘offset’ against) your home loan when loan interest charges are calculated.

Let’s say, for instance, that you have a home loan of $400,000 and $10,000 sitting in the offset account. Instead of paying interest on the full $400,000, the monthly charge will be based on a loan balance of $390,000, thereby providing a big saving on interest costs. 

But the benefits don’t end there. As your regular loan repayments stay the same, the reduction in interest charges means more of each payment comes straight off the loan balance. This reduces the following month’s interest cost, and in this way the loan pendulum starts to swing in your favour.

Plan your cash needs

The more money you have in the linked account, the bigger the savings on home loan interest, and some clever cash management can really boost the benefits of a mortgage offset account.
One strategy worth considering is to use your credit card to pay for a range of household expenses each month, while leaving as much cash as possible in the offset account. When your card statement arrives, dip into the offset account to pay off your card balance in full before interest charges apply. This way, you maximise the balance of the linked account for as long as possible.

If you’re saving for personal goals like an overseas holiday, an offset account can also be used to build funds while still helping you forge ahead with your home loan.

 

This article was provided by ME Bank, a bank that is 100% owned by industry super funds, including Vision Super.

Members Equity Bank Limited ABN 56 070 887 679.

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