Mortgage Offset Accounts for Savvy Savers
Are your savings fading away through lack of interest?
Are you unhappy about paying tax on your interest earnings?
Would you be interested in doing it a better way?
There are variable home loans available where a transactional account can be attached (into which your savings can go).
The benefit in having an attached account is that whatever savings you have will offset your loan balance 24/7 and the interest you pay will be calculated on the net balance.
Let's say you have $200,000 variable home loan costing 5% and $20,000 in an interest earning savings account earning 3%.
Your home loan will cost you $10,000 in interest over a year and your savings will earn you $600 before tax. If you were on a 30% tax rate you will keep $420 of your $600 earned., That results in an annual net cost of $9,580.
So, by this method an appreciative tax man receives $180 and you get to grin and bear it.
As an alternative, what if you put that same $20,000 in an attached Offset savings account?
The result would be that you will pay 5% interest on the net balance of your loan ($180,000) resulting in an annual cost of $9,000.
You are $580 better off!
In addition there is no investment risk involved and you can access all (or any) of your $20,000 any time you like.
The difference here is that income earnings are taxable but interest savings are not.
I think that's exciting and, yes, in case you're wondering, it's legal too.