How To Pay off your MORTGAGE FASTER in Australia

How to Use a Credit Card to Lower Mortgage Interest and Pay Off Your Loan Faster

Managing a mortgage effectively is crucial to reducing costs and achieving financial freedom. One strategic method involves combining your credit card’s interest-free period with an offset account. This approach allows you to minimize the interest on your mortgage while maximizing the value of your money. Let’s break it down step-by-step for simplicity and clarity.

Understanding the Strategy

The idea is simple:

• Use your credit card for daily and fixed expenses such as groceries, gas, utilities, and other bills.
• Instead of immediately paying off the credit card, transfer the equivalent amount of money into your mortgage’s offset account and let it sit there for as long as possible (up to the credit card’s interest-free period, typically 54-55 days).
• Pay off the full credit card balance a day before the interest-free period ends.

By doing this, you reduce the daily interest calculated on your mortgage principal for up to 55 days, saving money over time.

Step-by-Step Guide

Step 1: Route All Income to Your Offset Account

Direct your salary or any other income into your mortgage offset account. The higher the balance in the offset account, the less interest your lender will charge on your mortgage.

Step 2: Use Your Credit Card for Expenses

Pay for your daily and fixed expenses like groceries, gas, utilities, and subscriptions using your credit card. Avoid taking out cash advances from your credit card, as these incur daily interest charges and negate the benefits of this strategy.

Step 3: Let Money Sit in the Offset Account

Instead of using your offset account funds to pay off your credit card right away, leave the money in the account for as long as possible—ideally, the full duration of the credit card’s interest-free period (usually up to 54-55 days). This reduces the principal amount used to calculate daily mortgage interest.

Step 4: Pay the Credit Card in Full

A day before the interest-free period ends, use the funds in your offset account to pay off the full credit card balance. This ensures you don’t incur any credit card interest charges.

Why This Works

1. Lower Mortgage Interest: By keeping your income in the offset account for as long as possible, you reduce the mortgage balance used to calculate daily interest, potentially saving thousands over the loan’s lifetime.
2. Maximize Interest-Free Period: The credit card’s interest-free period allows you to delay payments without additional costs, giving your money more time to work for you in the offset account.
3. No Extra Costs: As long as you pay off your credit card balance in full and on time, you avoid any interest or fees from the card.

Example Scenario

Imagine you have:

• A $400,000 mortgage with a 3% interest rate.
• An offset account balance of $20,000.
• Monthly expenses of $3,000.

Without the Strategy

Your mortgage interest is calculated on $380,000 ($400,000 – $20,000).

With the Strategy

By routing your $3,000 monthly expenses through your credit card and leaving that amount in your offset account for 54 days, your average mortgage balance drops to $377,000. Over time, this reduction significantly lowers your interest costs.

Key Tips for Success

1. Don’t Use Cash Advances: Never withdraw cash from your credit card, as it incurs immediate daily interest and additional fees. Stick to using the card for purchases like groceries, gas, and bills.
2. Discipline Is Essential: Ensure you pay off your credit card balance in full before the interest-free period ends. Missing payments can lead to high-interest charges, negating any benefits.
3. Track Your Expenses: Keep a close eye on your credit card spending to avoid overspending. Treat your credit card like a tool, not an additional source of income.
4. Know Your Credit Card’s Terms: Familiarize yourself with your card’s interest-free period and repayment rules. Not all cards offer the same terms.

Frequently Asked Questions

Can I use this strategy with any credit card?

Yes, but ensure your credit card offers an interest-free period and that you understand its terms. Some cards may charge annual fees, so choose one with minimal costs.

Is it safe to leave my money in the offset account?

Yes, offset accounts are designed for this purpose. The more money you keep in the account, the less interest you’ll pay on your mortgage.

What happens if I miss a credit card payment?

Missing a payment can result in high-interest charges and late fees. To avoid this, set up automatic repayments from your offset account to clear your credit card balance before the due date.

Final Thoughts

By using your credit card for daily expenses and keeping cash in your offset account longer, you can reduce the interest you pay on your mortgage.

I personally use this strategy myself and have found it incredibly effective. Instead of paying for expenses in cash, I use my credit card for all my regular, fixed expenses. This allows the cash to remain in my offset account longer, reducing the mortgage interest I pay each month. By the time my credit card bill is due, I simply transfer the amount from my offset account to clear the balance. It’s like making your money work twice as hard for you.

If you’re unsure whether this strategy suits your financial situation, consult a financial advisor to tailor it to your needs. With the right approach, you can take significant strides toward becoming mortgage-free sooner.

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