Why Your Mortgage Offset Works Three Times Harder Than A Savings Account

An option that often gets overlooked is the mortgage offset account, which can work three times harder than a savings account or term deposit.

Let's take a quick look at why...

Offset accounts effectively earn you interest at your mortgage rate, which is usually higher than any savings or term deposit rate you'll find.

Think about it: banks are lending you money at their mortgage rate, so that's the return you're getting on your offset balance.

I love this one! The interest you save on your mortgage because of your offset isn't taxed. That's right, it's completely tax-free.

Compare that to a regular savings account. The interest you earn is considered income and gets taxed. So, if your marginal tax rate is, say, 30%, you're handing over $30 of every $100 earned in interest. Ouch!

Every dollar you have in your offset account reduces the amount of your mortgage balance you're charged interest on.

Let's say you owe $500,000 on your mortgage and have $100,000 in your offset. You only pay interest on $400,000.

Because you're saving on interest, more of your mortgage repayments go directly towards the principal balance. This means you'll pay off your mortgage sooner and save thousands in interest over the life of the loan.

So that's three ways Mortgage Offset accounts work harder for you, but there are other benefits too ...

Unlike term deposits, where your money is locked away, offset accounts usually offer more flexibility. You can generally access your offset funds whenever you need them (although it's wise to leave them there to maximise the benefits!).

If you have been comparing savings accounts and term deposits, you may have found yourself scrolling through lists of B-rate financial products you've never heard of, trying to find a good rate.

Unfortunately, in the money game, the general rule is "The higher the rate, the higher the risk."

But when you stick your money in your boring and safe mortgage offset, with a lender or company you have already picked, you get a top rate at a lot less risk.

There is something nice about knowing your money is working hard for you, you are getting a great rate, you are reducing your debt, and you are saving on tax.

But there is something extra nice about knowing you are getting one back on the bank and the ATO.

So, if you've got a mortgage with an offset account, make sure you're using it to its full potential. It's a smart way to make your money work harder and get ahead.

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