USED wisely, your credit card could help pay the mortgage off quicker. Sounds hard to believe, I know, but it is all in the way you use your credit card.
In fact, master this system of credit card use and you could shave thousands of dollars off your loan and years off your loan term by making your credit card work for you.
Linking a credit card to your mortgage is not a concept that most Australians warm to because it is considered too `risky’ – and it is for some like those who don’t have discipline when it comes to spending. However, there are ways to exploit the features of a credit card without having to run into bad debt.
Putting your card to work in tandem with your offset facility can be a real winner in terms of `savings’ on your mortgage. The concept is simple.
It’s well recognised by industry consumer groups and regulators that the fastest way to pay off a home loan is to make the maximum repayment at the optimal frequency, rather than the minimum required payment once a month or per each statement period. The reason for this is that interest on mortgage loans is calculated daily on the amount you owe and charged monthly in arrears. So by paying more into your loan more frequently you will be paying interest on an amount that is decreasing more rapidly, hence you pay less interest and your loan term reduces.
This is where your ability to offset your mortgage comes in handy. An offset account is essentially a savings account linked to your mortgage, which allows you to offset your savings, salary and other cash resources against the total balance of your home loan. The loan balance is immediately reduced and as interest is calculated daily on the remaining net amount on the loan, interest payable is diminished.
In brief, the key strategies in relation to using your credit card to help achieve these potential mortgage `savings’ are as follows: 1. Put all your salary in your offset account and keep it there; 2. Use a credit card to pay for living expenses; 3. Never spend more on your credit card than you have available in your offset account; 4. Pay off the credit card each month in full; 5. Have your next month’s salary paid into the offset account and start using the newly cleared credit card for transactions.
SB Realty Pty Ltd was founded by Shirley Broun, who spent much of her working life as a journalist, including several editorships and a successful 10 year period as Proprietor and Managing Editor of her own national award-winning publication in the entertainment industry. [Read More…]
