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Understanding whatAn Offset Account Does

There is a lot of confusion out there about what an offset account really is and how it works. It is actually very simple. The banks would like you to have an offset account, (there is a reason for that which I will explain a little later).

As an example – if you have a $400,000 loan and you have $200,000 in an offset account you will only pay interest on $200,000.

The money in your offset account is like a savings account. Offset accounts have their purpose. If you have a home loan it can be considered psychologically better to have that money straight on the loan and not sitting in an offset. Because when many home owners see that money in an offset they think – “that’s my money”, and I want to be able to spend it when ever I like. And that is ok, because it is your money, but if the money is sitting on your loan the chances of you taking that money back out are slimmer.

What we at EQC help you with is paying off your loans faster. Home loans, car loans or credit card loans they are all bad that you should get rid of as quick as possible. These are non-deductible debt.

If you have a home loan on it’s own and no investment property an offset account may be a good idea providing you leave the money in it. However there is a difference when you buy an investment property. If you have an investment property and your investment loan is $400,000, and have an offset with $200,000 in it, again you would only be paying interest on $200,000. Except, the interest paid on an investment loan is tax-deductable.