How does a 100% offset account work?
Interest payments, no matter how attractive the package, are very burdensome and add up very fast. In most cases, loan interest rates are significantly higher than what you would find with a standard savings account. An offset account would allow you to hold a portion of your loan in it and be charged interest on only the remaining amount owed – resulting in significant reduction in interest expenses.
To put things into context, if you took out a loan of $750,000 and placed $250,000 in a 100% offset account, you would only be charged interest as if you owed $500,000. Here are a few things to keep in mind when considering the use of a 100% offset account:
- Deposit your salary into your offset account.
- Maintain sufficient account balance to make loan repayments.
- Make your loan payments directly from the 100% offset account.
- You can redraw your original loan account to an offset account.
Who would benefit from a 100% offset account?
Unlike basic loans and pro packs, 100% offset accounts are not restricted in terms of the amount being borrowed. Additionally, these accounts typically do not include account maintenance or hidden fees, which means that overall costs would not include any additional charges. Key point: 100% offset accounts are most beneficial the more money they have in them.
If the following conditions match up with your situation, you could benefit from leveraging a 100% offset account:
- Your loan is worth more than $250,000.
- You live in a dual-income household with high monthly expenses.
- You can maintain sufficient funds in your account to make loan repayments.
- The potential interest from your account balance covers the cost of a pro pack’s annual fee.