Although paying off your investment or mortgage faster is not always effective for tax reasons, in some cases it can save you thousands of dollars in interest. But how can a clearing account help you do this?
First, it is important to understand how a clearing account basically works. Chan and Naylor managing partner Graeme Salt explained to Sarah Megginson, editor-in-chief of Your Investment Property, some cases where an offset account can deliver real cash savings benefits.
If you want to pay off your mortgage sooner, Salt says, "You have to be diligent with your savings plan."
"Compensation accounts are one of the best ways to pay off your home loan. What they do is a savings account [act as a] whose balance is offset by the actual loan, ”he explains.
"So let's say you have $ 500,000 and $ 100,000 in your savings account, the bank says, 'Well you add up, it's $ 400,000. We will only charge you interest on the $ 400,000 of the actual balance. This can therefore be very useful for the end date of the mortgage. You may have taken out a loan for 30 years, but you could pay it off in just 25 years when you are charged less interest. "
With every penny making a difference, Salt encourages clients to lower their income in a compensatory account and finance their daily expenses with a credit card.
They can then pay off the entire credit card each month.
"Again, the money stays in that clearing account, and then at the end of the month, the clearing account is what is used to pay off the credit card," he says.
For more information on how offsets and other financial hacks work, click here.
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