| An 'offset' account is a sophisticated way of 'fine
tuning' your lending requirements to your earnings and your daily
spending. In addition to your home loan, you have a transaction account with the same financial institution.
You deposit your income into the transaction account and use it for all
your daily expenses. Any money in this account is offset against the
amount owing on your home loan and you only pay interest on the
outstanding balance. So say, for example, that you have a home loan of
$250,000 and you have a balance of $10,000 in your transaction account,
you only pay interest on $240,000. Interest is calculated on a daily
basis.
Obviously your money is 'working harder' for you - your salary
reduces interest payments from the day it is credited to your
account. You never borrow more than you need, and any extra you
come across is working for you the moment it hits your account - at
the same time as being fully available for you to access whenever you
want - usually by just writing a cheque or going on the net.
Remember
however that an offset account is often expensive if you don't get it
as part of a professional package. Why? Because you usually
pay more interest on home loans which give you access to an offset
account - there are exceptions. If you're eligible for a
'professional package' type product, we suggest you 'go for it'. If
not, you might be better off with free unlimited redraw facility - such
as the ING Mortgage Simplifier.
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