Revolving credit and offset accounts
Insights with Infinance by Brian Coogan
So you have a mortgage and want to look at ways to reduce interest paid. Putting a portion on revolving credit and using offset accounts can save you interest.
Your mortgage can be split into different accounts to maximise interest savings. You might like to have a portion fixed at lower rates set for one or two years then have some on variable rates that work for you to lower interest.
A revolving credit facility is a working account with an available limit where you have your salary paid into it, reducing the balance interest is charged on and you use that account for spending which increases it until monies are paid back into it.
Having an available limit is handy for unexpected expenses and can be reduced later, you do need to be disciplined with it to ensure it’s consistently reducing and you’re not racking the balance up to the limit and increasing the amount interest is charged on as it’s on a variable rate.
An offset account links savings you have to your mortgage meaning the portion that would be charged in interest is applied to principal.
Say you have $300k on mortgage and $50k in savings, you won’t earn any interest on the $50k savings but you’ll only be charged interest on $250k.
You can have multiple accounts linked to an offset account including children’s savings accounts and can also have parents’ savings accounts linked to it so monies in their account can offset your mortgage. It might cost you an especially nice Christmas present but it’s a way for parents to help their children while retaining their funds.
Importantly the money in offset accounts remain available to you to use at will and is not tied up in any way with the interest offset based on the balance. If you have a windfall, offset it against your mortgage and have it still available to use.
Get in touch with your broker / adviser to walk you through the options available through your bank.
Written by Brian Coogan, Licensed Financial Adviser and Director at Infinance – Taupo
For more on the above go to www.infinance.co.nz/insights
“Don’t let money run your life, let money help you run your life better” – John Rampton