Competition is growing even hotter in the mortgage market – there are now several variable interest rate loans for owner-occupiers at less than 2 per cent.
The big disadvantage here is that they are not able to offer genuine mortgage offset accounts – an extremely powerful debt reduction tool. These are only available throughOffsets allow you to use every dollar twice – both for its intended purpose of building up an emergency cash pile and to slash your mortgage interest.
By sitting additional repayments alongside the loan in an offset account, which should save you an identical amount of interest as relying on redraw from within a loan, you preserve all future tax deductions. The reason is that your loan balance does not technically fall. Data house Mozo says that, both for owner-occupiers and investors, the top two principal-and-interest loans are from non-bank lenders that “white-label” bank products. They can offer cheaper rates because, without physical premises, they have far lower overheads.