How a $50,000 Offset Account Saves Interest on Your Mortgage
From Aaron’s YouTube: “how much interest you can save with a 50k offset account”
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Posted 18 July 2024
The short version
- A $50,000 offset account saves $242,000 in interest over 30 years on a $700,000 mortgage at 5%.
- Offset accounts reduce your mortgage balance for interest calculation purposes without locking your money away.
- The savings effectively shorten your mortgage term by over 25 years.
- Revolving credit works similarly to offset accounts for interest savings.
How offset accounts save you interest
An offset account links your savings to your mortgage, reducing the amount you pay interest on. For example, with $50,000 in an offset account and a $700,000 mortgage, you only pay interest on $650,000.
This savings strategy doesn't lock your money away. You can still access the full $50,000 if needed, but while it's sitting there, it's saving you interest on your mortgage.
The real-world impact
On a $700,000 mortgage at 5% interest, paid fortnightly over 30 years, a $50,000 offset saves $242,000 in interest. That's over a quarter of the original loan amount.
These savings don't just reduce the total interest paid. They also shorten your mortgage term by over 25 years, meaning you'll own your home outright much sooner.
Offset vs revolving credit
Both offset accounts and revolving credit accounts can achieve these savings by reducing your mortgage balance for interest calculation purposes.
The key difference is in flexibility: offset accounts let you link multiple savings accounts, while revolving credit provides one lump sum to draw from and repay as needed.
This is general information, not personalised financial advice. For advice on your situation, talk to Aaron.
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