Ask Finder: Can a 0% interest credit card offer help me save money on my mortgage?
Can you transfer funds from a credit card to your offset account to help save money on your home loan?
I recently read your article about using a credit card with an offset mortgage account. I like this strategy and had an idea of how I could build on it.
My plan is to get a credit card with a high limit of around $10,000 and a 0% interest rate for the first 12 months. I would then like to transfer that $10,000 to my mortgage offset account, and then spend 12 months paying off the credit card (while also servicing my home loan). When the card’s balance was back to $0, I would close the account.
Is this possible and allowed?
In theory, this plan could work – but in practice, it’s unlikely to be successful and is also very risky.
As you probably realised when reading the article I wrote, using a credit card and offset account to help you save money on your mortgage requires a fair bit of planning and discipline.
This is because it effectively requires you to juggle three accounts: your credit card, your offset account and your actual mortgage. Even the slightest change of plan – such as adding an unexpected charge to your credit card and not paying it off before interest is applied – could end up costing you more than it’s worth.
With that in mind, let’s take a look at the plan you’ve outlined.
Theoretically, adding $10,000 to your offset mortgage account could make a huge difference to the amount of interest you pay on your home loan. Depending on the size of your loan, the impact could be significant over a 12-month period.
This makes it tempting to look at transferring funds from a credit card with a 0% p.a. interest offer to your offset account. But, as your question suggests, this isn’t always possible. Most credit card providers won’t consider account transfers as eligible for a 0% interest rate – regardless of whether that rate is offered to purchases or balance transfers. This is because a direct transfer is usually classified as a cash advance.
A notable exception is balance transfer cards that also offer a cheque-to-self option – currently only available through Citi. If you’re approved for one of these cards, you can call Citi and request a cheque to yourself, which will be eligible for the promotional low or 0% p.a. balance transfer interest rate offered on the card. When approved, you could deposit the cheque into any account – including an offset mortgage account.
But – and this is a big but – changes to credit card lending requirements mean that the maximum credit limit you could get on a credit card would be calculated based on what you could afford to pay off, with interest, over three years. Lenders also factor in other debts, so your mortgage would be a part of the picture. This means it could be very difficult to get approved for the large credit limit you want.
On top of the credit limit requirements, cheque-to-self balance transfers may be limited to a portion of your approved credit limit. So, even if you did get approved for a card with a $10,000 limit, you might only be able to deposit a percentage of that to your offset mortgage account.
Along with these complexities, it’s also worth mentioning that your minimum monthly repayments could be quite high. This means paying off the credit card within the 12-month period you’ve suggested could be a struggle when you factor in your other financial commitments.
The bottom line? Although your plan could build on other strategies for using cards and offset mortgage accounts to save money on your home loan, it’s very complex and risky.
So, please think carefully about whether the time, effort and risks are worth going ahead with this plan. In some cases, it might be better to look at other options that can help you save money on your home loan – such as refinancing – so that managing these accounts doesn’t take up a huge chunk of your life.
Ask Finder is a regular column where Finder's expert writers answer your questions. All rates and fees are correct at time of publication and we only give general advice.
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