2. Put compound interest to work for you by using an offset account.
An offset account is simply an interest-bearing savings account, which is tied to your loan account. The difference between a regular savings account and an offset
account is that the balance in your mortgage-offset account is “offset” against the balance of the mortgage.
For example:
Let’s say you have a $100,000 mortgage and an offset account with $10,000 in it. The interest you would pay on that mortgage will be calculated against $90,000 – not $100,000. Using the current average variable rate of 6%:
Without using offset:
$100,000×6%= $6,000 interest payment per annum
With $10,000 in the offset account:
$100,000-$10,000= $90,000×6%= $5,400
Savings: $400 pa
As you can see, the more cash you keep in your offset account, the higher your savings on interest will be. Any “notional” interest on savings is earned at the same rate as the linked loan. Over time the savings – which you can certainly add to at any time – can help pay down the principal or build up your equity.