Mortgage, Setup

Set it up right

There are two easy options you could consider

Option 1

Create a structure where your salary goes straight into your mortgage account. This reduces the overall interest you pay on your mortgage debt. General expenses are then paid using credit cards - taking advantage of a 55-day interest free period.

Option 2

Create a structure where your mortgage, savings and current accounts are in separate pots. Your savings are used to reduce - or offset - your mortgage.

For Instance

You have a $500,000 loan over 30 years, at a rate of 9%. You earn $5,000 after tax each month and total expenses are $4,000. Simply by keeping the $1,000 balance in the offset account the money you would save would be equivalent to earning $25, 411 on interest and reduce the loan term by three months. If the amount you kept in the offset account was $5,000, it would be the equivalent of earning $120,155 and you would shave one year and three months off your mortgage.

In many cases it is worthwhile getting advice because in many cases a mortgage is not just a mortgage. The way your debt is structured can affect your entire financial picture. Some mortgage brokers will be able to provide strategic advice for debt management. Otherwise, find a financial adviser who can help you with your overall planning and cash flow management.