Offsst basics and benefits

Hi all,

I think I know the answer here but waned to clarify.

If I were to put $1000 per month into my offset account and leave it there, it has the same effect as paying $1000 off of the mortgage until I decide to pull it out? Is it that simple?

I am about to start my first Australian mortgage after coming here from the UK in 2012 and this will also be my first offset.

The most beneficial way to utulise my offset is to leave as much money in there for as long as possible? I have even heard of people paying everything on a credit card each month so they can leave all of the money in there until the next pay day where they pay the credit card off then live n it again for the following month just to maximise the benefits. Although I don't think my wife and I could be trusted with a credit card it seems to make sense.
 
Hi all,

I think I know the answer here but waned to clarify.

If I were to put $1000 per month into my offset account and leave it there, it has the same effect as paying $1000 off of the mortgage until I decide to pull it out? Is it that simple?

I am about to start my first Australian mortgage after coming here from the UK in 2012 and this will also be my first offset.

The most beneficial way to utulise my offset is to leave as much money in there for as long as possible? I have even heard of people paying everything on a credit card each month so they can leave all of the money in there until the next pay day where they pay the credit card off then live n it again for the following month just to maximise the benefits. Although I don't think my wife and I could be trusted with a credit card it seems to make sense.


the real benefits of an offset in my view are

1. Tax benefits if you ever keep the new place as an IP and buy a PPOR - I will let someone else expand.

2. Your money stays YOUR money. Im amazed that people dont read their credit contracts and what onerous redraw or loan revocation condotions they enter into. Many (dare I say most?) loan contracts and supporting memoranda of mortgage have some nasty things in them. If your cash stays in your REAL offset account ( ie a lender that is also a deposit taking institution) your offset account is usually a discrete savings acct.

There are other pros and cons, but im sure they will be covered in the following discussion

ta
rolf
 
Different people benefit differently from offset and redraw. You touched on it briefly but if you cannot be trusted with a credit card or if you think the money in the offset may get spent easily then an offset would usually not be recommended.

IMO in all other scenarios an offset is the better choice. As ROLF said, it's your money!!! Also it allows maximum tax deductions once you draw it out (keeps your loan at maximum which is critical if you ever turn your PPOR into an IP), a lot of redraws charge you to use them and come with a minimum withdraw limit.

There are even more benefits but I'll leave that to the others to answer. Regarding using your credit card another way to maximize this is get a card with rewards. Now these do have annual fees but it's just a matter of easily working out these versus the benefits.
My CC for example costs $150 annually, I would get back around $700 annually in rewards. So as long as I pay it off before the interest free period then my card makes me $550 per year.
 
I agree with Albanga. Offset accounts are fantastic for both PPOR and IP if you are not going to spend the money on things you shouldn't.

It is also great if you upgrade to another PPOR later and decide to keep this as an IP. The beauty of this is you don't have to decide now since an offset account will allow you to do this if you want to. The more you have in the offset, the better.

If you want to buy more IP in the future, you can deposit the money you have in your offset into the loan an redraw it to possibly make it tax deductible. Please note this is not tax advice, and you should seek advice from your tax adviser before doing this.
 
All great tips guys thanks.

As I know our weakness for spending when times get tough (just dip into savings) or we feel we would like to go out for a meal to celebrate something (just dip into savings) I will be setting the offset up in the same way in which I set up our savings to buy our PPOR and that is to have it set up so that we both have to be present and both have to sign to get the money out. This makes it too much hard work for us to do it for any other reason than if we really have to use it as we have no other options to solve the unexpected phone bill or car failure etc.

We pay our selves first now which we never did before, so we put our intended money into our savings, then pay our bills then decide how we would like to enjoy what is left and when it is gone, its gone. Working it that way made a huge difference to how we managed to save, and before that, clear our debts. Thank you Rich Dad Poor Dad and Mr Robert Kiyosaki:D
 
Others have covered the advantages, but the big disadvantage I see is in cashflow - if you keep it in offset then the regular loan repayments are the same (afterall the loan is still the same amount); if you pay some off the loan then the regular repayments come down (doh!).

An example:
loan = $1000, repayments $20/wk ($15 interest and $5 principal).
Lets say I have $250 in cash.

if I put it in the offset:
offset=$250, loan = $1000, repayments $20/2k ($12 interest, $8 principal).​

if I put it against the loan:
offset=$0, loan = $750, repayments $15/wk ($12 interest, $3 principal)​

So you get lower weekly (/regular) repayments but at the cost of loss of access to your own money.
Now if you're loan is interest-only, then there is no difference ($12 above); it's only if you're paying of principal that it can make a difference.
 
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