Keeping your savings in an off-set account WILL reduce the amount of interest you pay on your mortgage.
If your not familiar with the term off-set account,
Example:
Mr T and Barbie have a $100,000 mortgage, and $10,000 in savings in a linked 100 per cent offset account.
- The principal on a $100,000 loan is reduced by the $10,000 offset account to $90,000.
- As a result interest only accumulates on the $90,000 balance of the loan.
- Repayments continue to be made on the entire $100,000 principal and applicable interest.
- While savings in the offset account are actively working to reduce the loan, repayments are working more effectively to reduce both the principal and interest it attracts
- Over a number of years, both the principal and interest on your loan are repaid faster.
The wonderful advantage of off-set accounts is that you have access to that money at any time! It can save you hundreds of dollars a year. Most financial institutions offer some form of off-set account so check with your bank or building society.
