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00:10 Why Savings Accounts are Dead to you once you have a mortgage?

G’day. Daimien Patterson from Integrity Property Education. In this week’s blog, I’m going to tell you why, once you own a house, savings account are dead to you. So, we don’t get taught this stuff in school and not every mortgage broker does their job and tells us what we should be doing either. Once you own a property and you have a mortgage, you could never be using a savings account again, instead you should be using offset account.

Here’s why…

Why Savings Accounts are Dead to you once you have a mortgage?

How do offset account works? Let’s say we’ve got a house and we got a mortgage of four hundred thousand dollars. If we got fifty grand cash, there are two places we can put it. We can put it in a savings account, or we can ask the bank for an offset account. How does an offset account work? The way offset account works is this – we put our savings in there and when they go and charge us interest on the loan, and let’s say the interest is five percent, what they actually do is they subtract the amount of money in the offset account from the loan balance and only charges interest on the difference. In this case, if we put our fifty grand on an offset account, we would only be charged interest on three hundred fifty thousand instead of four hundred. So we’re saving five percent of fifty grand. If I put my fifty grand in my savings account, I’d be lucky to get three percent interest earned in that case. But, when we put money in savings, come tax time, we have to declare the interest we’ve earned on that savings. So Mr. Taxman comes in and takes thirty two and a half percent or thirty seven percent, whatever tax bracket you’re on, he takes that away. So in reality, we only get two percent of a saving from our interest. Now, where’s your fifty grand better off? In a savings account earning two percent, or in your offset account saving you five percent.

Everyone’s money is in a bucket and in that bucket we’ve got all of our cash water.

Another way to look at it is like this: Everyone’s money is in a bucket and in that bucket we’ve got all of our cash water. If I put my money in my savings account, I’m going to pour in to my bucket two percent of fifty thousand dollars. But everyone’s bucket has got a hole in it. That’s where expenses go and expenses include our interest that we pay on our mortgage. If I put the fifty grand in an offset account, I’m going to stop five percent from leaving the bucket. Now, what’s going to give us more water in our bucket? Two percent going in or stopping five percent from going out? And of course you don’t get taxed on that because it’s a saving, not an earning. So, once you’ve got a mortgage, savings accounts are dead. All your money should be in an offset account.

That’s it for me this week. Until next time. I’ll see you later. Cheers!

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