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How to save money with an offset account

by Lee Naismith

19 Aug - 2010 - 12:00 AM

Tags: offset


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For those that don't know what a mortgage offset account is it's simply a savings account linked to your mortgage account. You deposit your income or any extra income you have into the savings account and the balance in the savings account is offset against whats owing on the mortgage therefore you pay less interest over time.

offset

This type of product can be used as a early prepayment plan for your mortgage or if you are planing to use your home you are living in now as an investment property down the track an offset can be a very tax effective tool for you and it's this lesser known side I would like to expand on a little.

Imagine paying your home off for 15 years and then you decide to upgrade to a new home and you don't want to sell your existing home because you have nearly paid it off and you would like to turn it into an investment property.

So you buy your new home that you financed again and you have an investment property that you owe close to nothing on! Most of your debt is now non deductible.

An offset account can prevents this issue as it can maintain the original loan balance so when it's time to turn your home into your investment property you can claim the entire loan not just whats left.

OK so how do we do it, you set up an offset account for the home you are living in and you pay interest only on your home and put the balance of your income and any other money you have into the offset account, this will effectively reduce your interest charged and your repayments will reduce over time as you offset more interest on your loan.

When it's time to upgrade you simply use the money in the offset savings account to help with deposits and costs or move the entire amount into a new offset linked to your new owner occupier and start again. This then allows you to claim the maximum amount for your investment loan and minimizes your owner occupier debt. You could even start putting the rent you get from your new investment property into your new offset account to help save interest.


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