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Offset mortgage market starts to attract more competitors; Westpac latest to join; interest rates vary

Offset mortgage market starts to attract more competitors; Westpac latest to join; interest rates vary
29th Jul 13, 9:21am by David Chaston

Westpac has become the latest bank to offer an offset mortgage.

BNZ was the first to offer this product, followed by Kiwibank who recently reduced their interest rate for this product.

Offset mortgages allow clients to reduce the balance on which interest is charged by deducting the value of savings or term deposit balances from the gross mortgage loan amount.

The only interest that applies when balances are combined like this is the offset mortgage rate.

Westpac's new product, launched today, is called the Choices Offset.

As with competing products, it is only available as a floating rate. The initial rate is 5.69%.

All current mortgage rates are here.

Floating Offset rate
  %
BNZ 5.74
Kiwibank 5.25
Westpac 5.69

Westpac say that the key advantages of their mortgage offset account are

  • you could save thousands on your interest payments and reduce the length of your home loan
  • your accounts stay separate, giving you flexibility to access and manage your money to suit your needs
  • link up to 10 eligible Westpac accounts, including those of your parents or children to help increase your offset benefits
  • have the flexibility to pay lump sums off your home loan at anytime
  • get a competitive floating interest rate
  • you want to make the most of your day to day transactional account balances
  • you have immediate family that would like to help you pay off your home faster
  • create a loan that suits you by splitting your home loan across floating and fixed rates as well as Choices Offset

Family members who agree to link their Westpac accounts to "help you pay off your home faster" essentially give up their interest earnings on thos accounts.

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6 Comments

by  Mole  |  29th Jul 13, 10:25am 1375050347

As found out by some people in europe, if you have an offset mortgage, you still have savings on deposit, and so can be forced to take a haircut on those savings.

If you have a line of credit, you just have debt, and nothing to trim. 

 

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by  Zoltuger  |  29th Jul 13, 10:40am 1375051247

One of the examples on Westpac's site is unrealistic. $500k mortgage, 30 year term and having $100k savings in the bank and $500 per month to save? Even if your parents had $100k in the bank, they wouldn't want to forgo interest.

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by  odessakiwi  |  29th Jul 13, 10:58am 1375052282

Guess it depends on your parents.  We are in the exact situation you describe, parents are more than willing to forgo the interest given the net interest on savings is 2% after tax but the benefit to us is 5.5%.



We also put our savings of $500 per month plus into the offset account so that we have it available if we need it and in effect earns 5.5% interest rather than paying off the mortgage and losing control over or having a seperate savings account where it earns net 2%.



We also loaded up on cheap credit card debt at 1.99% and deposited that in an offset account so that it saves us net 3.5%.

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by  KiwiL  |  30th Jul 13, 9:07am 1375132025

Thumbs up! We are in a very similar arrangement to you. Saving as well as paying our home loan is super important to us. And once we have more savings than our offset loan (not too far away actually) we will start making lump sum payments to our 5 year fixed loan.

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by  RDee  |  29th Jul 13, 6:11pm 1375078261

Personally, I don't see the difference between this and using a revolving credit. End of the day, your deposit is unsecured bank property anyway, which they'll freeze if a defult looks like it's on the horizon. May as well load it on your mortgage and have less debt, less accounts but same overall position.

You'd be a fool to think you have anymore 'control' over your money (or lack thereof) using these products. Mostly gimmicks methinks.

At absolute best, maybe could be used as a marginal budgeting tool.

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by  KiwiL  |  30th Jul 13, 9:04am 1375131841

Plenty of benefit! Primarily being able to split money across accounts. We have savings, tax accounts, rates and insurances etc. Definitely it is a budgeting tool, but if it doesn’t cost you any more to have, why is it a gimmick?

I would personally hate to be forced to have all my money lumped in one account to get an offset benefit. Additionally, the advertised rate (at least with BNZ) is cheaper for the offset mortgage than it is with the revolving credit (and yes, we negotiated lower as well).

The other thing having this type of loan allowed me to do was drop our payments to the minimum when I was off work with a new baby – we still continued putting our regular amount into a savings account, but meant the funds were available if an emergency happened.

As for the example, not as unrealistic as you would think. And having been a lender for a bank with an offset mortgage, I can tell you plenty of parents forgo the interest to offset - often with a private arrangement with the kids who pay them the post tax net interest figure, much cheaper than the current floating rate.

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