Originally posted by HiDAVE
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Offset Mortgage Discussion Thread : Tips & Tricks - Pros & Cons
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I don't think the OP in this thread has really told anyone anything they didn't know. But here's two points that might be of interest to people:
1. Offset / revolving mortgages are typically at the floating rate. When I set up my loan with BNZ, they gave me a 0.75% discount on the floating rate, so my offset mortgage is only 5.99% interest.
2. A revolving mortgage is difficult to use for an investment property where you want to claim interest as an expense. This is because if you put your salary into the revolving mortgage, the IRD declares that you have paid that part of the mortgage off. If you then use the credit to pay off your power bill and other regular expenses, these payments will have increased your mortgage, but crucially the IRD says the purpose of this part of the lending was not to purchase/fund the investment property, and so now you can't claim the interest that accrues to that part of the mortgage as an expense. This quickly erodes the amount of interest you can claim as an expense on your IP, and becomes an accounting nightmare too.
However an offset mortgage does not suffer from the same problem, precisely because the mortgage itself is not being repaid back; the bank has simply chosen a different method of charging you interest on your mortgage. This means when your salary comes in, it will directly reduce the interest you are being charged, but beacuse it is in a separate account, you can freely use it for your day-to-day expenses. The best of both worlds.
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