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Offset benefits.

Discussion in 'Accounting & Tax' started by Mavis, 1st Jun, 2016.

  1. Mavis

    Mavis Well-Known Member

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    Hi all,
    this is probably a very silly question but I'm not great with getting my head around this and perhaps I'm overthinking it.

    Example:
    I have a home loan of $100,000 (for simplicity's sake) and it is linked to an offset account of which I have $80,000.

    At 4.04%, my monthly repayment of P+I is approximate $480
    Should my loan interest for the month be calculated on the $20,000 ? which means a whopping $68?

    Or is this too simplistic a way of how offset accounts work?

    Looking at my end of month statement and I'm puzzled..
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    If you're paying P&I, your repayments won't change but the proportion of principle vs interest will.

    So you'll be paying interest on the $20k as you say, and the rest of the repayment will reduce the principle.
     
  3. Mavis

    Mavis Well-Known Member

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    Thanks Jess.

    I just realized that the issue was - the offset account had not been set up for a full month so the interest calculation I had in my head wasn't quite accurate.

    :oops:
     
  4. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Offset benefits of reduced interest are based on daily balances. So depositing $80K to an offset against a $80K loan on 30 May would only see a trivial benefit in month one. A full benefit thereafter
     
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  5. PatSyd

    PatSyd Member

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  6. Pauly84

    Pauly84 New Member

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    So if he has a loan of 100k and 100k in the offset and the loan is set up for interest only what happens to the loan then ?
     
  7. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    He doesn't have to make any repayments until the IO period is up.
     
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  8. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    I tell my clients that banks are like little children. You can give them specific instructions but always sensible to check that they have carried through on said instructions. Dont assume your offset is automatically connected as often they are not.
     
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  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Thats true and great advice.
     
  10. Colin Rice

    Colin Rice Mortgage Broker Australia Wide Business Member

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    Thanks. I grant my permission to turn it into a tax tip :p
     
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