Understanding Comparison Rates and Offset Accounts

The video tutorial explains the concept of interest-only loans, where repayments equal the interest charged, keeping the balance constant. It illustrates a property investment scenario, highlighting potential profits and the impact of stamp duty. The tutorial introduces offset accounts, which reduce interest by treating transaction account balances as mortgage payments. It differentiates between good and bad debt, emphasizing the benefits of low-interest debts like HEX. Finally, it explains comparison rates, which include additional fees, helping borrowers compare loans effectively.

What happens to the principal balance in an interest-only payment plan?

• It increases over time.

• It decreases over time.

• It doubles over time.

• It remains the same.

Why might someone choose an interest-only loan?

• To reduce monthly payments permanently.

• To invest in property or a business venture.

• To avoid paying any interest.

• To increase their credit score.

In the example given, what is the expected change in property value over 25 years?

• It doubles.

• It triples.

• It decreases.

• It remains the same.

What is an offset account primarily used for?

• To increase the principal amount owed.

• To eliminate all loan payments.

• To reduce the interest charged on a mortgage.

• To increase the interest rate on a loan.

How does an offset account affect the interest charged on a mortgage?

• It reduces the interest charged.

• It has no effect on the interest charged.

• It increases the interest charged.

• It doubles the interest charged.

What is the main advantage of using an offset account?

• It eliminates the need for a mortgage.

• It provides tax benefits.

• It significantly reduces interest payments.

• It increases the principal balance.

What is a comparison rate?

• A rate that is higher than the actual interest rate.

• A rate that is lower than the actual interest rate.

• A rate that includes all fees and charges.

• A rate that only includes the interest charged.

Why is a comparison rate important?

• It increases the loan amount.

• It eliminates all additional fees.

• It reduces the interest rate.

• It provides a more accurate picture of the loan cost.

What does a comparison rate help you compare?

• Different loan options.

• Different types of investments.

• Different savings accounts.

• Different credit cards.

What is included in a comparison rate besides the interest rate?

• Only the principal amount.

• Only the interest rate.

• All fees and charges.

• Only the loan term.