How to Reduce Your Mortgage Payments with an Offset Facility.

As Mortgage Advisers, we often get asked by homeowners about clever ways to save money on their mortgages. One powerful tool that's gaining popularity is the Offset Facility. So in this week's update we will explore how this nifty feature can help you reduce your mortgage payments and potentially save thousands over the life of your loan.

What is an Offset Facility?

An offset facility is a savings or transaction account linked to your home loan. The balance in this account is offset daily against your mortgage balance, reducing the amount of interest you pay.

How Does it Work?

Let's break it down with a simple example:

• Your mortgage balance: $400,000
• Your offset account balance: $50,000
• Interest is calculated on: $350,000 ($400,000 - $50,000)

By reducing the balance on which interest is calculated, you're effectively lowering your interest payments without changing your loan terms.

Benefits for Kiwi Homeowners

1. Lower Interest Payments: You'll pay less interest overall, potentially saving thousands over the life of your loan.
2. Flexibility: Unlike making extra repayments, you can still access your money in the offset account if needed.
3. Faster Loan Repayment: By reducing interest, more of your regular payments go towards paying off the principal.

Is an Offset Facility Right for You?

An offset facility can be particularly beneficial if you:

• Have significant savings or regular lump sum income (like bonuses or commissions)
• Want to maintain easy access to your funds
• Are looking to reduce your mortgage term without committing to higher repayments

Things to Consider

• Offset facilities often come with higher interest rates or sometimes account fees
• Not all lenders offer offset accounts - currently there are only 3 banks in NZ that offer Offset Facilities (others offer Revolving Credits, which are similar - but different).
• The benefits depend on maintaining a substantial balance in your offset account

Next Steps

If you're intrigued by the potential of an offset facility, it's worth discussing with a qualified Mortgage Adviser. We can help you crunch the numbers and determine if this strategy aligns with your financial goals and circumstances.

Remember, everyone's financial situation is unique. What works for one homeowner might not be the best solution for another, so always seek professional advice before making significant changes to your mortgage structure.

By understanding and utilising tools like Offset Facilities, you can take control of your mortgage and potentially save a significant amount over time. It's all about making your money work smarter, not harder - so get in touch for a no-obligation chat with us!