Q Our home loan is currently with a bank. My husband sought advice from them and they said it would be better if he put all of his income into the home loan and I do the same. The bank also told him that if all our wages go into the home loan it would be paid off much earlier. I currently have my own savings account with a credit union and like things the way they are. My question is if I put my money into the bank and withdrew it straight away, would it still reduce the home loan? All of my wages are spent before the next pay day, so I can’t see how putting my wages into the home loan would be any benefit.
A I think what the bank is referring to is what’s called an all-in-one account or 100% offset home loan. These work by putting all of the household income into the account and drawing out funds as needed using ATM or EFTPOS facilities. Even if all the money is withdrawn from the all-in-one or offset account before your next pay day, the total amount of interest you pay on your home loan can be reduced as your salary offsets your home loan principal for at least some days during the month and interest is calculated daily on your home loan. The benefits can be extended by using a credit card with an interest-free period to pay for all your expenses, thus leaving your salary in the loan account for the longest period of time and then paying the balance off before interest kicks in.
These types of facilities can be useful and can reduce the interest on your home loan, as long as they’re used wisely. Check to see what terms and features your bank is offering on these accounts, do your sums and see if this option is what’s best for you. An offset or all-in-one account can be convenient if you keep your income in the account for a reasonable period of time.
Related: Home Loan Calculator