To me, the introduction by most Lenders of a 100% linked mortgage offset account offering was the best thing since sliced bread in providing the opportunity to reduce mortgage interest charges. Other than the mortgage holder using the account nothing more need be done to gain the benefit of reduced interest charges. What could be easier?
And yet, I am regularly surprised that mortgage holders who have an offset account available to them do not use the account at all or do not use the account effectively even though in most cases they are paying a monthly or annual fee that includes availability of this facility. I am even more surprised when I find that these same folks are also paying fees and charges for transaction accounts at other institutions that clearly cannot linked to their mortgage account.
This situation is particularly in evidence when couples are in the pre the offset account generation or those couples who have a mindset that each partner has their personal account plus having a joint housekeeping or mortgage repayment account or both – not to mention a holiday savings account and so on.
At a time when the banks are paying abysmally low interest rates on savings and term deposits why would you not stick every cent you have into an account that pays you, by default, at your mortgage interest rate – and tax free at that.
Call me old fashioned, but it seems crazy to have bank accounts with balances in them not deriving a material benefit other than to the bank.
To state the obvious:
• Start using the offset account exclusively.
• Have your income direct debited into this account.
• Close all other accounts.
Remember, banks calculate mortgage interest charges daily but charge them to the mortgage account monthly. So every day that funds are held in the offset account the interest charge for that day is reduced.
If consolidating all the individual accounts into a single offset account is a bridge too far it is likely that a mortgage restructuring that facilitates separate bank accounts could well be the solution.
Though this article is primarily focused on optimising the use of home loan offset accounts the incorporation of an investment property loan into the mix offers the opportunity to further maximise benefits.
Want to know more? Want to discuss loan structures and options for effective investment property or owner occupied financing? Please contact Peter Spooner.
Peter Spooner is a qualified and highly experienced residential property financing specialist. He has access to over 800 loan products from a panel of 30 lenders (including all of the major banks) plus reach-back to over 500 Loan Market associates when formulating solutions for his clients. Peter does not charge a fee-for-service.