How to Minimise Your Mortgage with a 55-Day Interest-Free Credit Card and an Offset Home Loan
Are you looking to pay off your mortgage faster and save thousands in interest? Leveraging a 55-day interest-free credit card in conjunction with an offset home loan could be the key to supercharging your mortgage repayments. However, this strategy requires a high degree of financial discipline and organisation to execute successfully.
The Power of Offset Accounts
An offset account is a transaction account linked to your home loan that allows you to reduce the interest you pay. The balance in your offset account is deducted from your loan amount when interest is calculated, so you only pay interest on the difference.
For example, if you have a $450,000 mortgage at 6% interest and $40,000 in your offset account, you’ll only be charged interest on $410,000. Let’s say you have a 30-year mortgage at a 6% interest rate. Without an offset account, your monthly interest would be $2,250. But with $40,000 in an offset account, your interest drops to $2,050 per month, saving you $200 each month or $2,400 annually. Over the life of the loan, this could add up to over $72,000 in interest savings.
The Credit Card Trick
To maximise the benefits of your offset account, you can use a credit card with a lengthy interest-free period, typically 55 days. Here’s how it works:
Have your entire income deposited into your offset account each month.
Use your credit card to pay for all living expenses, bills, and purchases during the month.
Pay off the credit card balance in full before the interest-free period expires, using the funds from your offset account.
This allows you to keep your money in the offset account for as long as possible, reducing the interest charged on your mortgage. It’s essentially using the bank’s money for free to pay down your debt faster.
However, it’s crucial to pay off your credit card balance in full each month to avoid interest charges. Any interest paid on the credit card will negate the savings you’re achieving on your mortgage. Failing to clear the balance in full could leave you worse off financially.
Discipline is Key
While this strategy can be highly effective in reducing your mortgage, it requires a high level of financial discipline and organisation to execute successfully. If you’re not careful, it can easily turn into a debt trap.
It’s also important to avoid overspending just because you’re using a credit card. Stick to your budget and only charge expenses you would have paid for anyway. If the temptation to overspend is a concern, you may be better off making extra repayments directly to your loan instead of using an offset account.
Choosing the Right Lender and Products
To make the most of this strategy, you’ll need to find a lender that offers a 100% offset account and a credit card with a generous interest-free period. Some key considerations:
Look for a lender that offers a 100% offset account, where the full balance is deducted from your loan when calculating interest. We can assist you with this.
Choose a credit card with at least 55 days interest-free to maximise the time your money can remain in the offset account. (Note: It’s just as important to check out the credit card you intend to apply for as some have hefty fees, some have substantial rewards and not all rewards are equal. On top of this, credit card limits impact your borrowing capacity if you are planning further credit applications).
Your Brisbane Home Loans Broker will compare home loan interest rates, as some lenders may charge a higher rate for offset accounts.
Consider the overall fees and charges associated with the home loan and credit card to ensure you’re getting a competitive deal.
An experienced mortgage broker can help you navigate the options and find the right combination of products to suit your needs and financial situation.
Important Tip: If there is any possibility that you may wish to change the use of your owner occupied home to an investment property, please discuss with your accountant first, before adopting this strategy as it may not be for everyone.
Conclusion
Using a 55-day interest-free credit card in conjunction with an offset home loan can be a powerful way to pay off your mortgage faster and save thousands in interest. However, it requires meticulous financial management and discipline to execute successfully.
If you have a high income, are excellent at budgeting, and can resist the temptation to overspend on credit, this strategy could be a game-changer for your mortgage repayments. But if you’re not confident in your ability to manage credit responsibly, it may be best to stick to more straightforward methods of making extra repayments or using a redraw facility.
Ultimately, the key to minimising your mortgage is to have a well-organised financial system in place and to make paying off your home loan a top priority. With the right tools and discipline, you can achieve your goal of becoming mortgage-free sooner rather than later.
