really Stupid question about Mortgage offset

We are trying to get to a postion of LVR 85% to buy our first IP, and think maybe establishing a mortgage offset could be a good first step, but HOW do they work, and what do we have to do exactly ?

An offset account is a separate savings account that is linked to your loan. Instead of paying you interest, that bank offsets the account against the loan, reducing the amount owing. For example, if you have a $100k loan and have $60k in your offset account, you would only pay interest on $40k, which significantly reduces the amount of interest you pay. They work well with an interest only loan.

There are three great advantages of an offset account. Firstly, you do not have to pay tax on this interest, as you would with a regular savings account. Secondly, if your loan is 8%, you are effectively earning 8% interest on the amount in your offset account with no tax paid- much high rates than traditional savings accounts. Finally, you can get the money back whenever needed, keeping the maximum tax benefits on your IP.

You set up one by asking you bank. Some banks have a minimum of $1k to start an offset account. You should ask this question before setting it up,
"Is it a 100% offset account?"
Some banks only offer a partial offset, which is not good.

I hope I have expained it clearly, feel free to ask more q's.
Steve

Also not all lenders/loans can link to an offset, which lender are you using?

Dan

Also not a lot of lenders that offer a 100% offset account with a fixed rate loan. I think Adelaide Bank are one of the few.