How does an offset mortgage account work in New Zealand?
With an offset account, the money sitting in a linked bank account is offset against your mortgage balance before interest is calculated, so you pay interest on the difference rather than the full loan. If you owe $400,000 and keep $40,000 in the offset, you are charged interest on $360,000, which shortens the term and cuts total interest while your savings stay accessible.
Is an offset account better than making extra repayments?
It depends on whether you need the money back. An offset account reduces interest on the same basis as a lump sum paid off the loan, but the cash stays available to you, which suits an emergency fund or savings buffer. With a standard repayment account, extra repayments shrink the principal directly but are typically locked away unless you have a revolving credit facility or redraw.
How much does an extra $50 a week save on a mortgage?
On a $400,000 loan at 6.5% over 25 years, paying an extra $50 a week could cut your term by a couple of years and save tens of thousands of dollars in interest. The exact figure depends on your loan, rate, term and extra amount; this calculator works it out for your numbers, and also shows the effect of an offset balance.
Does an offset account cost anything?
Some banks bundle an offset account into a package (often with a monthly fee), while others offer it as a standard feature. Because offset balances usually earn no interest, the benefit is entirely the mortgage interest you avoid, so run the numbers, and check the fee, before paying extra for the feature.