OFFSET ACCOUNT
How Abdullah saved $66,756 in interest & 3.5 years.
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Abdullah needed to borrow $560,000 including stamp duty & establishment fees to buy a duplex in Greenacre, Sydney. He had a deposit of $327,000 and the purchase price was $887K. An interest rate of 3.49% This gives an LVR of around 63%, which doesn't trigger Lenders Mortgage Insurance.
What about the offset account?
Abdullah had a significant savings account of $40,000, which he used to buy old cars, fix them up, and then on-sell. Surprisingly, Abdullah didn't want an offset account. He thought $40K was insignificant and didn't want to "wrestle with the bank" every time he wanted to buy another car. He bought them at online auctions and needed the money quickly to bid.
What exactly is an offset account?
I explained to Abdullah that he should think of an offset account as an everyday transaction account linked to his home loan. He could draw up until the point of his extra repayments or savings in the account. And let it be no more complicated than that.
Why not leave it in my spending account?
It was a fair question, and one I hear over and again. The real power of the offset account, I explained, is in the compound interest. As the graph shows, $40,000 left in the offset account over the term of the loan is worth $66, 756 in interest saved. And you get to take the $40,000 out of the account at any time to buy and sell cars - which of course would change this amount.
How can i reduce my loan repayments?
Like Abdullah, there may be simple changes you can make to your debt structure or lender or product that could make massive changes in your finances. And all this is simply interest saved. Abdullah saved 3.5 years of going to work to pay his bank additional interest.
Matthew Stack - mortgage broker in Revesby.
matthew@mortgagebrokerrevesby.com.au
0423 237 242
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