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Although it works like any other savings account, the borrower receives no interest income on the savings that have got accumulated in this account. Instead, this amount is "offset" against the outstanding loan balance. Eventually, the savings in the 100 percent offset account contribute to trimming down the loan principal, thereby enabling early pay off and exit from the loan.
The best part of a 100 percent offset account is that the interest is charged on a daily basis, depending on the outstanding loan balance, wherein the balance in the savings account is subtracted from the outstanding loan balance. It is therefore advisable to direct all your income to the offset account because any money that is deposited in the offset account is deducted from the net debit balance before the interest is calculated and ultimately shortening the term of the loan taken. It is, therefore, a convenience way to save thousands of dollars in mortgage interest and also bestows the borrower with redraw option and flexibility in repayments.
The 100 percent offset account operates like any other transaction account and usually has a check facility and a debit card, which allows the borrower to make ATM transactions. Since funds in the 100 percent offset accounts are exempted from income tax, borrowers get benefited by depositing any spare savings in the offset account.
However, the interest rates on 100 percent offset accounts are comparatively higher. Even the monthly fees and other charges are slightly higher. Also, the borrower is expected to maintain a minimum balance in the offset account.
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