An offset account is an account designed to reduce the amount of interest you are charged on your loan or mortgage, by reducing your loan balance before the interest is calculated.
For example, if you have a loan with a value of -100,000, and an offset account with a value of 5,000, then your interest payable would be calculated on -95,000.
If your lender has provided you with one or more offset accounts for your loan, then the following steps will show you how to set it up.
Link the Accounts
You need to set up two separate accounts, one for your loan and one for your offset account. We recommend that you use the word Offset in the title of the offset account. For example, if your loan account is named "Home Mortgage", then we recommend you call the offset account "Home Mortgage Offset".
If your lender has provided you with multiple offset accounts then you will need to set up one account in the software for each offset account. If you have three offset accounts then you could name them "Home Mortgage Offset 1","Home Mortgage Offset 2" and "Home Mortgage Offset 3".
The loan account is set up in the normal way ( a new account and select the account type "Loan / Mortgage").
To create an offset account, a new account to the workbook, and select the account type "Interest Offset".
Once you have set up the accounts, you can link them using the "Manage Linked Offset Account(s)" button in the Loan Account Details screen (select the Loan account in the list and click ). This will present you with a screen that lets you view, Add, Edit and Remove offset account links. For each offset account you wish to link to the loan, select "New Link".
In the pop-up screen:
- Select the offset account you wish to link to the loan.
- Enter the allowable offset amount (this is the amount of the balance that can be used in the interest calculations, and is normally set to 100%).
Repeat this process for each offset account you wish to link to the loan.
Statements and Transactions
All statements and transactions for the offset account are entered separately from the loan account. You need to create new statements for the offset account and add all the required transactions (or import them).
The interest rates for the offset account and the loan account are maintained separately. If your offset account has the same interest rates as your loan, use the options from the view for the offset account.
Most of the reports are designed to be run against the loan account, not the offset account. That is, you should select the loan account before running the required report.
The Interest Checker Report
will automatically include the balance of the offset account(s) when it calculates the Estimated Interest Paid for your loan. To see the details of the offset account interest you are saving, select the tab in the report.
The Refund Calculator Report
will automatically include the balance of the offset account(s) when it calculates the refund amounts for your loan.
The Daily Interest Report
provides a detailed breakdown of the loan account and offset account information, including the balances, daily interest rates, interest on each account, the allowable offset amount and the total interest that should have been charged per day.
The Planning Reports
give you the option of including the offset balance(s) in the calculations, so that you can instantly see how much you will save in interest charges over the life of the loan.
You should be aware of the following exceptions when using offset accounts in the software:
Offset Account Balance Greater Than Loan Balance.
Unfortunately your lender won't pay you interest on any offset amounts greater than the loan balance, so you effectively miss out on earning interest if your offset balance is greater than your loan balance. Within the software the interest deduction on the offset account is capped to the loan interest amount.
For example, if you have a loan with a value of -100,000, and an offset account with a value of 105,000, then your interest payable would be 0. However the 5,000 extra in the offset will not result in an interest payment to you.
Negative Offset Account Balances.
Generally this scenario is not valid (that is, the banks do not allow you to overdraw your offset account). Within the software if the offset balance is negative it is treated as a zero balance.
For example, if you have a loan with a value of -100,000, and an offset account with a value of -5,000 (overdrawn), then your interest payable would be calculated on the full loan balance of -100,000.