Using zero per cent credit cards to cut mortgage interest costs

Zero per cent credit cards can be a useful way of cutting mortgage costs, but they must be used with some caution and the card holder needs to be well organised.

It must be made clear that this approach can only work with a flexible mortgage, which allows for instant payments and withdrawals, and which has daily interest rates. There are two main mortgage accounts which work in this way, the offset account and the current account.

The offset account has a savings account attached to the mortgage account, allowing overpayments to be deposited into that savings account so that instant withdrawals of that money can be made. This associated savings account will offset the mortgage interest charged by the lender.

A current account mortgage is a mortgage with transaction account capabilities, such as a chequebook and debit card. This means wages can be deposited into these accounts and general transactions can be paid out.

With a sufficiently large credit limit on the zero per cent rate credit card, the homeowner can transfer the mortgage balance to the card and therefore accrue no interest during the card’s introductory period. If that’s not possible, purchases that would normally be made through the mortgage account can instead be made through the zero per cent rate credit card, allowing the salary to earn interest during the introductory period. After the introductory period is over, the zero per cent credit card should be paid off in full the mortgage account. In this way, a significant amount of interest can be shaved off the mortgage debt.

However, the mortgage holder should avoid the temptation to go straight from one zero per cent interest rate introductory offer to another. For one thing, it’s easy to get the timing of this wrong and find that a month’s interest must be paid on the card at the full rate, so that any advantage is lost. Secondly it can harm a mortgage holder’s credit rating to be constantly applying for credit cards.

It is usually safe to use this technique about once a year, saving a large amount of interest on the mortgage and discharging the debt sooner.