Could an Offset Mortgage Make Your Savings Work Harder?

Written By Kim Manunui

When you have a mortgage, your savings could be doing more than sitting in the bank.

Could an offset mortgage make your savings work harder?

An offset account can allow your savings to work alongside your home loan, potentially reducing the amount of interest you pay.

The concept is relatively simple. An offset mortgage links your home loan to one or more eligible bank accounts. The money sitting in those accounts is offset against your mortgage balance when interest is calculated. 

For example, if you have a $500,000 mortgage and $50,000 sitting in your linked savings or everyday account, you could potentially pay interest on $450,000 rather than $500,000. Your $50,000 remains accessible, while potentially reducing your interest bill.

You don't necessarily have to keep your savings in a separate dedicated account either. Depending on the lender and product, you may be able to link multiple accounts in your own name — such as savings accounts, everyday accounts or accounts used for different financial goals.

And there can be an interesting family angle.

Some lenders allow eligible accounts belonging to other family members to be linked to an offset mortgage. This could mean parents helping an adult child reduce mortgage interest while retaining ownership and access to their own savings.

For example, parents with $100,000 in savings may, under an appropriate lender structure, be able to link that money to their child's mortgage. If the child has a $500,000 mortgage, the linked $100,000 could potentially reduce the interest-bearing balance to $400,000.

In effect, the parents may be helping their child access the benefit of $100,000 without necessarily handing over the money or charging interest — somewhat like providing an interest-free helping hand.

However, offset rules differ between lenders, and there may be restrictions around which accounts can be linked, who can own them and how the arrangement operates.

An offset isn't automatically the best option. But if you have savings — or family members willing to help — it's worth asking whether your money could be working harder by sitting alongside the mortgage rather than simply sitting in the bank.

For more on the above, click on the link below.

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Kim Manunui

Hi, I’m Kim and I work with a great team to help individuals, as well as small and not so small businesses get their message, product and services to the world using digital media and creating wonderful websites that don’t cost the earth.

I was born in Canada, and grew up around Vancouver and the mountains of British Columbia. My love of pristine environments led me to New Zealand and eventually to the mountains, lakes and rivers of the central North Island which is home. My family’s heritage is here, and it’s from here that Korio traverses the planet.

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