Dodge the taxman to supersize your savings

Dodge the taxman to supersize your savings

How would you like a savings account with an interest rate 60 basis points (or more) above the best savings accounts on the market, that is not only delivered tax-free, but could also help to clear your mortgage years early?

It might come as a surprise, but when it comes to finding a great savings rate, your home loan could be the answer. That’s because for savers, a mortgage offset account can offer a good, tax-free return with a rate that’s hard to beat.

How does it work?

A mortgage offset account operates in a similar way to a transaction account, but is linked to a home loan. The ‘savings’ balance is offset against the balance of your loan, so you only pay interest on the difference.

When used in the right way, a mortgage offset account can cut years off your home loan and save you thousands of dollars.

For instance, if you took out a $300,000 mortgage and had an offset account with $15,000 in it you will only pay interest on the balance of $285,000, which over 25 years could save you almost $20,000 in interest (assuming you maintain a $15,000 balance and pay a rate of 7 percent interest).

With mortgage rates typically higher than savings rates, the benefit you get from not paying interest often outweighs the loss of a savings return and if you need to access the money you have saved it is readily available.

At the time of writing, the average interest rate on mortgages with an offset feature is 6.62 percent, according to the RateCity database. That’s about 0.6 percentage points above even the best high-interest savings accounts on the market, which boast maximum rates around the 6 percent mark.

Is it for you?

Offset mortgages can be a great tool for regular savers, but they can also provide a great tax-free place to stick one-off lump sums, tax returns or a work bonus.

Unlike most high-interest savings accounts, which require a saver to meet certain conditions to achieve a bonus rate, offset accounts ‘pay’ richly for every dollar you deposit without lock-in contracts. So if you want to be more in control and have greater flexibility with your savings, a mortgage offset can be a great option.

If you opt for an offset account don’t rush to pull your savings out of your high-interest savings or term deposit account prematurely, because by doing so may mean sacrificing some interest. Contact your institution before withdrawing funds and compare mortgages with offset accounts before making your move.

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Learn more about home loans

How does an offset account work?

An offset account functions as a transaction account that is linked to your home loan. The balance of this account is offset daily against the loan amount and reduces the amount of principal that you pay interest on.

By using an offset account it’s possible to reduce the length of your loan and the total amount of interest payed by thousands of dollars. 

Example: If you have a mortgage of $500,000 but holding an offset account with $50,000, you will only pay interest on $450,000 rather then $500,000.

How long does NAB home loan approval take?

The time required to get your home loan from NAB approved can vary based on a number of factors involved in the application process. 

Once you have applied for a home loan, a NAB specialist will contact you within 24 hours over the phone to take down relevant information, including your total income, debts (existing loans, credit cards, etc.), assets (car, shares, etc.), and your monthly expenses (food, utility bills, etc.). Your lender might also ask for information related to the property you want to purchase, including the type of dwelling and preferred postcode.

NAB will then verify all your information and check your credit score, and if the details stack up, you should be given a conditional approval certificate. This certificate stipulates how much money NAB is willing to lend you and is typically valid for 90 days. 

Once you have your conditional approval, you can start browsing for properties that you like and that fit within the budget that NAB has provided. After you find a suitable property, you’ll need to give a copy of the signed deed to NAB, following which you should get full approval and access to the funds. This process can take up to 4-6 weeks. 

What is a valuation and valuation fee?

A valuation is an assessment of what your home is worth, calculated by a professional valuer. A valuation report is typically required whenever a property is bought, sold or refinanced. The valuation fee is paid to cover the cost of preparing a valuation report.

Who offers 40 year mortgages?

Home loans spanning 40 years are offered by select lenders, though the loan period is much longer than a standard 30-year home loan. You're more likely to find a maximum of 35 years, such as is the case with Teacher’s Mutual Bank

Currently, 40 year home loan lenders in Australia include AlphaBeta Money, BCU, G&C Mutual Bank, Pepper, and Sydney Mutual Bank.

Even though these lengthier loans 35 to 40 year loans do exist on the market, they are not overwhelmingly popular, as the extra interest you pay compared to a 30-year loan can be over $100,000 or more.

Mortgage Calculator, Loan Purpose

This is what you will use the loan for – i.e. investment. 

What is appraised value?

An estimation of a property’s value before beginning the mortgage approval process. An appraiser (or valuer) is an expert who estimates the value of a property. The lender generally selects the appraiser or valuer before sanctioning the loan.

How is the flexibility score calculated?

Points are awarded for different features. More important features get more points. The points are then added up and indexed into a score from 0 to 5.

What is the amortisation period?

Popularly known as the loan term, the amortisation period is the time over which the borrower must pay back both the loan’s principal and interest. It is usually determined during the application approval process.

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

What is the ratings scale?

The ratings are between 0 and 5, shown to one decimal point, with 5.0 as the best. The ratings should be used as an easy guide rather than the only thing you consider. For example, a product with a rating of 4.7 may or may not be better suited to your needs than one with a rating of 4.5, but both are probably much better than one with a rating of 1.2.

Mortgage Calculator, Repayment Frequency

How often you wish to pay back your lender. 

Mortgage Calculator, Interest Rate

The percentage of the loan amount you will be charged by your lender to borrow. 

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

What is breach of contract?

A failure to follow all or part of a contract or breaking the conditions of a contract without any legal excuse. A breach of contract can be material, minor, actual or anticipatory, depending on the severity of the breaches and their material impact.