It is very important to shop around when looking for the best offset deals. Since the Australian mortgage market is vast, you will have to compare offset mortgages against each other. Therefore, take your time and know what you are specifically looking for. This will help you weigh the different options and help you choose the right deal.
Compare the Headline Rates
Even though the headline rate is a very important factor you need to consider other factors when comparing offset mortgages, it is not always the most important aspect of the mortgage. You have to also consider the other elements. However, you have to think about all the eventualities before you settle on a rate.
Compare the Accounts
The account or accounts attached to the offset mortgage is very important. In order to compare offset mortgages, you need to know what you can do with the account.
Will it offer all that regular bank account offers? Do you need an account which will enable you to make regular transactions? Or do you need an account which will enable you to save rather than spend? Will the offset account be attached to debit or credit cards?
Some of the lenders usually limit what can be taken out of the account each and every month. This is what you should also consider. Basically, the key to comparing offset mortgages is knowing exactly what you need every month out of your offset account.
Compare the Interest Rates.
One of the most attractive extras of the offset mortgages is the tax break on your money. Since there is no interest earned on the offset accounts, there are no taxes owed helping you save on your mortgage rather than lining the tax man’s pockets.
Therefore, if you want to compare the offset mortgages to find one that will earn you the most money, looking at the interest rate on the account is very important. The best account rate will enable you to save and leave your money to work in the offset mortgage.
Compare the Limitations.
A good comparison compares the positives and limitations of offset mortgages. Most of the offset deals limit the amount you can borrow depending on your credit status. Others will limit what you can take from your account.
You also need to think about the future; will you be able to take out extra loans on top of the offset mortgage? Or will you be taking out more from the account in the future?
Knowing about what you plan to do in future will be important as knowing what you want to do now will help you choose the best offset mortgages.
Compare the Hidden Extras.
When it comes to comparing the offset mortgages, considering the extras, rates and limitations will help you make an informed decision. However, you should not forget the small print. Although the hidden fees, extras and possible penalties may not seem like a huge problem right now, these factors will come back to haunt you in future.
Is there an application? Is there an exit fee? Are there any early repayment charges? The little things do count when comparing the different offset mortgages. Choosing the right offset mortgages has never been this easy just follow the tips above and you are good to go.
Why Would You Want an Offset Account?
Offset Accounts have intrigued Australian consumers for years. What are Offset Accounts and why should consumers consider this option?
An Offset Account allows you to combine an existing mortgage with your savings account. In some cases, it is possible to combine credit lines and loans as well. The interest you earn on your savings will offset the interest on your mortgage and other debts. This is an interesting option because it makes your mortgage more affordable by reducing the interest cost you have to pay. For instance, combining a $600,000 mortgage with a $30,000 savings account means you will only pay bank interest on $570,000 and you will not get interest for the $30,000 you saved up.
Why can’t You Earn Interest on Your Savings?
The interest that your savings earn is used towards your mortgage interest repayments. There are no taxes due on this interest. For instance, your $600,000 mortgage with 4% interest charges will cost $24,000 in interest charges each year. If you have $30,000 in savings, you will have to pay interest on a balance of $570,000, which means the interest will total up to $22,800. Your savings allow you to save $1,200 in interest charges. This is an interesting option since you won’t find a safer way to invest your $30,000 and there is no income tax payable on the interest savings.
Do You Need a Large Savings Account?
Ideally, you should have savings that correspond to 10 to 20% of the amount of your mortgage. This will allow you to efficiently offset the interest costs.
Can You get an Offset Account if You are in Debt?
In some cases, it might be best to consolidate your different debts with your mortgage. The downside is that all your debt will become a secured loan and it might take longer to repay. You should go over your budget and figure out what kind of payments you will be able to make on your Offset Account. An Offset Account might not be a good option if you wouldn’t be able to afford the payments.
Are Offset Accounts a Flexible Option?
There are different types of Offset Accounts to choose from and you need to compare the details and terms before choosing the best option for you. In most cases, you can get an Offset Account that allows you to overpay without any additional fees. You should be able to make an overpayment and to make a smaller payment the next month or even to take a break from making payments when you need to. This is a good option if you want your money to work for you.
What are Your Options?
There are two main types of Offset Accounts, including current account mortgages and offset mortgages.
What are the Differences Between these Two Options?
A current account mortgage allows you to combine your savings with your mortgage. Your salary is then directly deposited into this account. This allows you to have a single balance for your deposits and for the debt you owe. With an offset account, your savings and debt are in two accounts. The interests are calculated based on the net figure and the interests on your savings are offset against the mortgage interests.
Are there Any Downsides?
You need to be able to keep track of your spending very carefully. Combining your deposits and your debts might make it difficult to track your spending.
Can You Switch to a Different Lender?
It is possible to switch to a different lender if you want to. However, this process is not easy and it is important to choose the right service provider from the start.
Will You End Up Paying More in Interest Charges?
You can usually get a very competitive rate when applying for an Offset Account.
How can You Obtain an Offset Account?
You can apply for an Offset Account via a bank or a building society. You might want to receive advice from a mortgage broker to determine if this is a good option for you and to find the right service provider.
Are You Looking to Pay Your Mortgage off Faster?
For those individuals who are looking for ways to pay off a mortgage faster and save thousands of dollars in the process should look into securing an offset account.
While the idea of mortgage offset accounts are not anything new they have transformed out of the ashes of credit loan products. Not too long ago, all the rage was lines of credit. People were fascinated with how easy these loans were to acquire and spend.
It was a Financial Trap for Many
The appeal of lines of credit came from the fact that one only had to make interest only payments and in some cases no payments were needed at all. This was made possible when the borrower was given a line of credit with a pre-approved limit. Basically, the bank would offer you a loan for more than the amount you actually needed.
However, all good things must end and that is what happened with the lines of credit. People became less interested in them and banks had to change the way they did business With the lines of credit riding into the sunset, the offset account was reborn
Better For Banks and Consumers
One of the main issues that was resolved with offset accounts was the borrower had to make regular payments. This could be either paying a regular principal and interest payment or just the interest.
Understanding How Offset Accounts Work
Once the loan is configured, the bank will form a transaction account that is used to deposit funds into. Any form of funding source can be deposited into this account from rental income to weekly pay checks. Even large deposits from a car sale or other object can be deposited into this account.
The beauty of this system is the money that sits in the offset account will be automatically used to reduce the interest that needs to be paid on the mortgage.
So in simple terms any money that is in the offset account will help to reduce the overall loan.
Can you see how good this really is?
Let’s take a look at this from a practical manner. Imagine you have a $300,000 mortgage and $20,000 in your transaction account from a recent car sale. The $20,000 can be used toward the mortgage which will help to reduce it to $280,000.
This is a simple way to help reduce your mortgage.
We are One Step Ahead of You, What were You Thinking?
You are wondering where all this extra money is coming from. There are bills, food, and other expenses that need to be paid monthly. There is no way possible to leave all that excess cash in the bank.
Believe it or not, the bank can help you with these issues. The bank has technology that will automatically calculate all the interest on a daily basis. The bank will keep track of the daily balance that is in the offset account and will charge back any accrued interest into the loan.
At the end of the month, the bank will charge everything up and charge it back to the loan account. During this time you will receive the benefits of earning interest on your cash deposits as they are simply sitting in the offset account.
Tax Free Money
This scenario gets even better as the interest that is earned is all tax-free.
Take a few minutes and think about this. If you placed the same amount of money into a saving account, would you earn that type of interest?
Many times, the most you could hope for is 3% and that is on a good day. More than likely, you are only looking at 1% or even less.
Regardless of the percentage, you would still have to pay a tax on it.
Interest Saved is Interest Earned, Tax Free!
With the offset account you are saving interest, not earning it! This means there is no tax involved! Depending on the tax bracket that you find yourself in, you would have to find an interest bearing account that pay about 4-6% before taxes.
If you have not set up an offset account for your mortgage, isn’t it time you think about it today? This is one of the easiest ways to pay down a mortgage. There is no thought process to it, the money is automatically applied to your loan. There is no risk involved. In the end, you will more than likely find yourself with more spending money at the end of the month than you did previously and your mortgage will be paid ahead of time.