Knowledge gap costing homeowners thousands
New Zealand homeowners may be missing out on thousands in potential savings each year, with a new BNZ survey revealing widespread confusion about offset mortgages – despite the product helping BNZ customers save more than $200 million in home loan interest in 2024.
While most survey respondents had heard of offset mortgages, nearly half (46%) admitted they either don’t know much about them or have never heard of them at all. Among those aware, 29% incorrectly believe that large account balances are needed year-round for offset loans to be effective.
“There’s a real disconnect between awareness and understanding when it comes to this type of home loan,” said James Leydon (pictured), BNZ general manager home lending, in a media release.
“This suggests many could be missing out on a straightforward way to reduce their interest, too often because they think it’s only for wealthy people or that it’s too complex to manage.”
The findings come as BNZ chief economist Mike Jones says the “Year of the Refix” is evolving quickly, with many borrowers rolling off higher rates and looking for ways to save. He noted the average paid mortgage rate dropped to 5.66% in June, from a peak of 6.39%, and is expected to fall toward 5% by year-end.
The $200 million question
Offset mortgages allow borrowers to link everyday transaction and savings accounts to their home loan, reducing the balance on which interest is charged. Loans can also be split between offset and fixed-rate portions, combining flexibility with rate certainty.
BNZ’s data shows the savings can be significant. In 2024, customers with its TotalMoney offset home loan saved $200 million in interest payments. More than 13,000 customers paid zero interest on their TotalMoney loans at times throughout the year, while the average effective interest rate across all TotalMoney loans was just 1.71% p.a.
“These aren’t just wealthy people – these are everyday New Zealanders who’ve learned how to make their money work smarter,” Leydon said. “People from all walks of life are using their regular savings and their transaction account balances to offset their home loan interest.”
Busting the myths
Survey results highlighted key misconceptions that may be discouraging wider uptake of offset mortgages:
- 58% of those aware of offsets correctly identified them as a simple way to save interest
- Around half still believed high balances were needed year-round
- Only 23% saw them as being “for everyday people”
“The beauty of offset home loans is they work with whatever money you have,” Leydon said. “Whether it’s your pay sitting in your account for a few weeks, holiday savings building up over months, or your emergency fund, every dollar reduces the interest you pay, even if it’s only there temporarily.”
Unlike traditional savings accounts that earn minimal interest, funds in offset accounts can effectively “earn” at the mortgage rate – currently around 5-6% for most borrowers.
Despite these benefits, just 27% of respondents said they currently have an offset loan and use their savings and transaction accounts to reduce interest.
“We know many homeowners are looking for ways to reduce their costs in the current economic environment, and I would really encourage them to explore offset options,” Leydon said. “Especially when you consider that in many cases, it’s simply about restructuring existing money rather than finding additional funds.”
Making home loan dollars work harder
BNZ’s TotalMoney product lets customers link up to 50 transaction and savings accounts – including family members’ accounts – with balances automatically offsetting home loan interest daily.
The bank has continued refining the product since launch, aiming to make home loan management simpler and more effective.
“We want more people to understand that offset mortgages aren’t just for property investors or high-net-worth individuals,” Leydon said. “They’re a practical tool for anyone who keeps money in bank accounts and wants to reduce their home loan interest.”
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