How 1 Mortgage-Reduction Tip Could Save You $200,000

Mortgage Reduction Tips for High-Income Investors

How To Save $200,000+ Using Banks Money – Advice That Could Save You $200,000+

One of the most important strategies we teach our high-income clients is how to use an offset correctly. As you can see, from the examples below, it’s a strategy that can save a mortgage holder $200,000 in the life of a loan without making any extra repayments – just by structuring your loan correctly with a good broker. That’s free money in your pocket. What could you do with $200,000?

There’s no worse feeling than over-paying for something – it’s like pouring money down the drain.

And yet, thousands of Australians waste millions of dollars collectively every day, by overspending on ill-suited mortgage products and paying higher interest rates than they need to.

More often than not, people end up paying too much simply because they don’t engage with their finances.

This is the biggest debt of your life and it should be treated that way, because the reality is, failing to proactively manage your mortgage could see you lose $100,000 to $250,000 over the life of your loan – perhaps more.

It’s a huge wasted opportunity.

So just how can you get started on eliminating debts, reducing your mortgage and saving a six-figure sum along the way – without investing extra dollars or making any changes to your lifestyle?

Get engaged with your finances

Your first step is simple. It’s essential that you regularly review your mortgage, to make sure your loans are structured in a way that can move you forward financially.

For high-income earners this is especially important, as you’ve got the resources available to take charge of your money and minimise your debts.

These resources include features such as offset accounts, which can play a key role in helping you pay off your mortgage, fast.

A qualified and experienced mortgage broker should keep you updated with the most recent products and product changes, so you’re always leveraging the most suitable financial tools for your situation. Check in with them at least every six months to see what opportunities are available.

If you haven’t set up an offset account yet, it’s time to contact a Mortgage Corp Loan Expert and find out how to set it up correctly.

Use an offset account to your advantage

If you have a home loan but don’t have an offset account, then you need a better mortgage broker, stat.

Any borrower with any savings at all – even as little as $10,000 – should be leveraging an offset account to their financial benefit.

In essence, an offset account is a savings account attached to your mortgage account, which allows you to reduce your interest charges against your mortgage.

By using a credit card supplied as part of the package and enjoying up to 55 days of interest-free each month, you can save thousands of dollars – all by using other people’s money to help you reduce debt.

Here’s how it works:

Let’s say for this example, Ben Smith, an IT Manager working for a large corporate company, brings home each month $8,500 after tax. Ben has a $500,000 mortgage and $50,000 in his offset account. That $50,000 ‘offsets’ the amount of interest payable on Ben’s loan.

While that money remains in the offset, Ben’s interest obligation is payable on just $450,000.

Then, Ben ups the ante by adding his monthly after-tax income of $8,500 to his offset. He pays for every single living expense and bill throughout the month using his interest-free credit card, then pays the balance in full each month. We call this using the bank’s money for free to help pay off your mortgage.

The end result? Ben only pays mortgage interest on $441,500 – and the savings quickly build up.

Let’s see how much Ben could save a year:

Mortgage amount
Without offset $500,000
With offset $500,000
Savings in offset plus monthly income
Without offset 0
With offset $58,500
Interest-bearing debt
Without offset $500,000
With offset $441,500
Interest rate
Without offset 5%
With offset 5%
Interest payable p.a.
Without offset $25,000
With offset $22,075

Annual Cash Savings

– –

$2,925

Ben pockets almost $3,000 in cash savings every year, with no extra financial effort required.* There has been no change to Ben’s lifestyle, spending or financial outlay, but thanks to smart money management, he’s able to save thousands of dollars per year.

Have us workshop the numbers for you to find out how much “free money” you could be entitled to, simply by using this one mortgage feature. Contact us today to see how this could apply to your unique circumstances.

How to bank $200,000 (or more) using an offset account

The money Ben saves every year can be redeployed into debt repayment, with extraordinary results.

It’s not just that it will allow him to pay off his mortgage/s or other debts sooner; it’s the fact that he will quite literally save six-figures worth of wasted interest and mortgage repayments by doing so.

Even if he doesn’t pay a single extra dollar from his own personal income, other than the savings made from using an offset account, into his loan, the overall benefit is significant. In fact, some mortgage holders could save over $250,000 during the life of their loan.

Here’s how it works:

Assuming Ben pays the credit card balance in full each month at the end of the free interest period and doesn’t have any other debts.

Mortgage amount
Without offset $500,000
With offset $441,500
Normal monthly mortgage repayment
Without offset $2,680
With offset $2,680
Interest charge in repayment
Without offset $2,083
With offset $1,839
Extra loan principal reduction due to interest saving (per month)
Without offset – –
With offset $244
Overall time saving over life of mortgage
Without offset – –
With offset 6 years

Annual Cash Savings

– –

$192,960

~ Assuming repayments at 5% interest rate on 30-year loan, with an ongoing offset of $58,500. No additional savings or increases in salary are assumed.

How does Ben save such a significant sum?

Ben pays a monthly mortgage of $2,680, including principal and interest. Six years’ worth of saved mortgage repayments equates to the following:

$2,680 x 12 months = $32,160
$32,160 x 6 years = $192,960

By leveraging offset and fast-tracking his mortgage repayments, Ben will be saved from making $192,960 worth of mortgage repayments.

The above figures demonstrate that just by doing the minimum and using an offset account, with no additional savings, it’s possible to save hundreds of thousands of hard-earned dollars!

Now, if Ben were to compound his efforts and add to the offset account over the loan term, the saving will be much, much greater.

We have clients on the path towards savings of $300,000 to $400,000 by following our proven method – and what’s more, this is only one of many steps that can be taken to leverage your money more effectively. Contact us today to see how Mortgage Corp can help you save more money and grow your wealth.

The savings account myth

Of course, there are alternatives to offset accounts. If you have $50,000 in a standard savings account instead of in an offset account, you could earn a small amount of interest from your bank.

But those earnings (which amount to around $1,000 on a $50,000 savings balance, at current rates of roughly 2%) would also be subject to tax, whereas any savings in offset do not attract tax implications.

If you’re a high-income earner paying the top tax bracket, then you can expect to funnel almost half of that savings interest towards the taxman, versus reducing your home loan more effectively.

The choice is yours: if you have $50,000 to leverage, you can save $2,900 per year with an offset account, or pocket around $500 from a savings account.

It’s a no-brainer, right?

Redraw and offset: Which is better?

Another alternative to an offset account is to redraw, an option that many mortgage-holders use to maximise their money.

While an offset account is a savings account run in conjunction with your loan, a redraw facility is a feature within your mortgage. It enables you to deposit any spare income you have directly into your home loan account, reducing the amount of interest you pay on that debt.

You can ‘redraw’ any surplus funds from the loan when you desire, but in the interim you’ll save money on interest repayments.

Borrowing again from Ben’s earlier example, you could pay $50,000 into your $500,000 mortgage and only pay interest on $450,000, while still having those funds available for redraw. Note that fees may apply for withdrawal, although a good broker may be able to help you get these fees waived, if this is the better option than using an offset strategy.

Generally, an offset account is the most suitable loan feature for high-income earners in allowing them to become mortgage-free, faster.

With an offset account, you can have your salary and any other sources of income paid directly into the offset account each month, ensuring that every dollar ‘not spent’ is being used to reduce the balance of your loan. While using an interest-free credit card, you’ll also maximise your interest savings, while knowing you can access your funds at any time.

A redraw facility is not suitable for this level of leverage, as it’s designed as more of an ‘interest savings’ strategy than a transactional account.

Furthermore, when using a redraw strategy, there are important tax considerations that need to be factored in. For instance, if you redraw money from an investment loan and use those funds for non-investment purposes, the interest on that amount will no longer be tax deductible.

Also, if you change your home loan to an investment loan, any redraw funds may not be tax deductible in the future due to the intention of those funds. This can create complexities when working out your tax deductions and may ultimately cost you more money in the long run.

We would almost always recommend using an offset account rather than a redraw facility.

This is one of many reasons why it’s important to ensure your mortgage broker is working with your accountant. We work with a number of trusted partners in this regard who can partner with you to maximise your financial situation. Contact us today to find out whether an offset account or a redraw is best for you, based on your personal circumstances.

The dangers of a ‘set and forget’ strategy

If the above examples haven’t yet sold you on the benefits of using various mortgage structures to your advantage, then perhaps this will.

Most people don’t pay much attention to their mortgage, unless they’re planning to change it. But the danger of this type of ‘set and forget’ mentality is that you could miss out on valuable opportunities to shave hundreds of thousands of dollars off your home loan.

To demonstrate this more clearly, we’ll run a few figures through our mortgage calculator to show you just how much being passive can cost you.

Let’s say there were another investor, Judy, who earns $150,000 per year and pays off her $600,000 mortgage at a rate of $3,600 per month. In 30 years time, Judy pays off her loan completely – and she’s paid a staggering $695,000 in interest along the way.

But what if Judy was a little more proactive?

What if she regularly reviewed her mortgage and consistently monitored the market. Let’s say Judy was on a standard variable home loan and met with Mortgage Corp broker, she could get a much better offer and potentially reduce her home loan rate by around 1% over the life of her loan.

This would reduce her average monthly repayment to $3,220 – and reduce her overall interest bill to around $560,000.

This one act of proactivity saves Judy $135,000!

So let’s ramp it up a level. What if Judy used an offset account to her advantage, leveraging $50,000 in savings against her mortgage. At a mortgage interest rate of 5%, this would generate interest savings of $50 per week, or $2,600 per year.

If Judy reinvested these savings into her mortgage?

Judy would then save a further $55,000 in interest repayments and wipe almost 3 years off her loan term.

With a little careful consideration – and importantly, no additional financial outlay – Judy has saved almost $200,000 in interest payments over the course of her loan.

How an offset can help you pay off all your loans faster

Using your offset account, you can funnel your disposable income and interest savings towards debt repayment, prioritising your non-deductible debts first.

A non-deductible debt is any debt that can’t be claimed at tax time. Your own personal home loan, personal credit cards and personal car loans are all examples of non-deductible debts that should be eliminated first and foremost.

For example, let’s assume that David and his wife Sandra have two mortgages – a $500,000 owner-occupier loan and a $500,000 investment property loan.

David and Sandra’s after-tax salary combined is $20,000 per month, which is paid into their personal home loan offset account. They don’t have an offset account on their investment loan, as these repayments are deductible against their high-income tax rate.

David and Sandra pay all of their monthly living expenses on credit card and when the 55-day interest-free period expires, they pay the credit card balance in full.

Personal home loan amount
Without offset $500,000
With offset $500,000
Average savings in offset/month
Without offset 0
With offset $20,000
Interest-bearing debt
Without offset $500,000
With offset $480,000
Interest rate
Without offset 5%
With offset 5%
Interest payable p.a.
Without offset $25,000
With offset $24,000

Annual Cash Savings

– –

$1,000

By adopting an offset account and paying their incomes into it, David and Sandra save $1,000 annually in unpaid interest.

Their living expenses amount to $12,000 per month, including a personal home loan repayment of around $2,700 and private school fees of around $3,500 per month. They leave their remaining monthly income of $8,000 per month in the offset account. After 12 months, this amounts to $96,000 cash in their offset account.

After 12 months…
Personal home loan amount
Without offset $500,000
With offset $500,000
Average savings in offset/month
Without offset 0
With offset $96,000
Interest-bearing debt
Without offset $500,000
With offset $404,000
Interest rate
Without offset 5%
With offset 5%
Interest payable p.a.
Without offset $25,000
With offset $20,200

Annual Cash Savings

– –

$4,800

As their savings balance increases monthly and their income continues to offset their mortgage interest, David and Sandra save $4,800 in interest savings annually. They reinvest these savings back into the principal of their owner-occupier mortgage and save $100,000 in interest over the life of the loan.

More importantly, they trim 8 years off the term of their loan, without making any extra repayments at all. By making a small additional monthly payment while using an offset, they could save even more money – serious money – and pay off their mortgage even faster.

By simply using an offset, however, David and Sandra save $250,000+. They pay a monthly mortgage of $2,684, including principal and interest. Eight years’ worth of saved mortgage repayments looks something like:

$2,684 x 12 months = $32,208
$32,208 x 8 years = $257,664

By fast-tracking their mortgage repayment, there are $257,664 worth of mortgage repayments that David and Sandra will never have to make!

Wouldn’t an extra $257,000 in your pocket make it worthwhile to check in with your mortgage from time to time?

It’s a huge chunk of money and could help you take the next step toward owning investment properties and increasing your wealth, rather than the bank’s.

To learn more about how an offset or other mortgage structure could help save you money, book a Free Loan Strategy Session loan experts today !

Speak to a Mortgage Specialist

Mortgage Reduction Tips for High-Income Investors

Get engaged with your finances

Use an offset account to your advantage

Here’s how it works:

Let’s see how much Ben could save a year:

How to bank $200,000 (or more) using an offset account

Here’s how it works:

How does Ben save such a significant sum?

The savings account myth

Redraw and offset: Which is better?

The dangers of a ‘set and forget’ strategy

How an offset can help you pay off all your loans faster

1300 138 943

How To Find Out More

Company

Social Media

Speak to a Mortgage Specialist

Mortgage Reduction Tips for High-Income Investors

Get engaged with your finances

Use an offset account to your advantage

Here’s how it works:

Let’s see how much Ben could save a year:

How to bank $200,000 (or more) using an offset account

Here’s how it works:

How does Ben save such a significant sum?

The savings account myth

Redraw and offset: Which is better?

The dangers of a ‘set and forget’ strategy

How an offset can help you pay off all your loans faster

1300 138 943

How To Find Out More

Company

Social Media

Loan Strategy Consultation