When we get a loan to buy a home, we usually have every intention to pay it off as fast as possible. There are many strategies to this. However, the reality of it is that you need to pay more money onto the loan. The more you pay onto your loan the faster you pay it off.

The interest on your home loan is calculated daily based on the balance of your home loan on that day and then added altogether at the end of the month, which becomes your monthly home loan repayment. So, if your interest is calculated daily then wouldn’t it be awesome to put any extra money you have to put into your home loan to reduce the interest charged, but then take it back out when you need it?

Let me now introduce to you the offset account. An offset account is a transaction account you have with the same bank as your home loan lender. It is linked to your home loan account and the balance in your offset account offsets your home loan balance. An offset account also acts as your transaction account and comes with debit cards, so your money is easily accessible.

Most people don’t use their salary the moment it hits their account, so why not make your salary offset your home loan interest while it sits in your account and then you can access it once you need it. If you get paid weekly, this means you are making weekly deposits into your home loan without making payments into the home loan account, which means your interest being charged reduces every time you get paid.

Some of my clients will take this a step further and keep all their savings in an offset account while using a 55 day interest free credit card for their monthly expenses and then pay the credit balance at the end of the month. This means they use their savings to reduce the interest being charged while they use the banks money for free to pay for their monthly living expenses. This system is a great way of managing your finances but requires a lot of discipline.

A simple example. If you owe $100,000 and you have $10,000 in an offset account that month. You’ll only pay interest on the $90,000.

The offset account always remains a separate account to your home loan and will always remain a transaction account, so it’s as easy making your everyday transaction work for you.

“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1.” – Warren Buffett