Some Strategies to Reduce Interest Paid - Pay off Your Mortgage More Quickly


Offset Accounts

Want to reduce the interest you pay on your mortgage?

  When you take out a mortgage with a lender, it can be a very good idea to also open an offset account with the lender that is linked to the mortgage.  You can have your mortgage payments made automatically from this account. This account to all intents and purposes is like an ordinary at-call account but with one important difference. 

When the lender is calculating the interest amount you are to be charged at any time, they will notionally subtract the amount in the offset account from the amount of the mortgage before they calculate the interest due. 

What does this mean?  If you have a mortgage outstanding of $250,000 and $10,000 in the offset account, the lender will only charge you interest on $240,000.  Over the years this can amount to a substantial saving for you. 

You should therefore have as much in the offset account at any given time as possible.  Have all your incoming money such as salaries, wages, bonuses, dividends, etc. directed to this account.  You will however, have to take money out of it to live!

You can improve this strategy by also taking out a credit card with the lender at the same time with a limit, if possible, that will enable you to pay all of your goods and services on a monthly basis.

  This means that at any given time your offset balance is higher. 

Pay the card off completely when it is due each month.  You will not be charged any interest.  But beware!  If you are late with payments you will be charged interest at a high rate and if you take out cash with the card you will again be charged high interest immediately. 

Therefore pay off the card when it is due, and when you need cash, take it out of the offset account.

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