If you have a home loan with an offset facility, learning to use it cleverly can mean you pay significantly less interest over the life of your loan. An offset account allows you to use the balance of a linked transaction account to reduce (or offset) the balance of your home loan that interest is charged on.
For example, if you had a home loan of $400k with $30k in an offset account, you’d only pay interest on $370k (i.e., the loan amount minus the amount in the offset account).
The possibilities here aren’t to be sneezed at. If an interest rate of 4% was applied to the above scenario, you’d save more than $60k over the life of a 30-year mortgage.
This is all well and good, but not everyone has a large lump sum sitting around. And those that do often have things they want to spend it on. So, although any amount in an offset account will save you money, it makes sense to maximise how much you’ve got in there.
Believe it or not, a credit card can help you do this. Wondering how? Well, wonder no more because we’re just about to show you.
Get clever with a credit card
Arrange to have your salary paid straight into your offset account. You should then pay for as many everyday expenses as you can with your credit card (e.g., petrol, groceries, household bills), thereby keeping as much of your earnings as possible in your offset.
To ensure the strategy is successful, you’ll need to pay off your credit card in full before the end of its interest-free period. Most cards these days offer 55 days, which should be plenty of time before your next salary payment lands in your offset account.
If done correctly, the balance of your offset account needn’t drop from month to month. In fact, it will rise if your combined outgoings are less than your income. And of course, every cent will go towards saving money on your home loan.
Things to look out for
There are a few things to look out for to ensure this method works for you.
First and foremost, you need to be careful not to overspend on your credit card. You also need to ensure you don’t miss your credit card’s interest-free repayment deadline, or you could end up paying more interest on the card than you will save on your home loan.
And finally, factor in any annual fees that might apply to your credit card.
If you stay on top of these, you’ll be laughing.
Want to find out more?
Check out our home loan with offset account and credit card options today!