Mortgage offset accounts are an avenue some homeowners may find useful to explore. While it requires a little bit of excess cash to set up, it enables you to utilise your savings to minimise your loan interest as well as saving you some tax in the process.
Put simply, an offset account is effectively a savings account tied to your mortgage. Rather than accruing interest on your regular savings and incurring interest on your loan separately, your offset account balance is subtracted from your outstanding loan when interest is tallied.
For example, consider a loan of $400,000 with an interest rate of 6 per cent. If you have $50,000 in your offset account, the 6 per cent interest will only be charged on $350,000 of your loan.
At tax time, the benefits are definitely noticeable. Whatever is in the offset account is not considered taxable income. So, not only do you pay less interest on your mortgage but you also lose less of your income to tax, enabling you to pay off your loan quicker on two fronts.
Of course, with all these benefits, you might wonder why everyone doesn’t take this route. There are some downsides to note. Some lenders will factor in the possibility of an offset account by charging higher interest on the loan in the first place. The numbers really depend on your own personal circumstances so dust off the calculator and work out the figures before committing to a mortgage offset account.
For more property investment advice, talk to the property investment mentors at Rass Global Investments..