Variable borrowers have built big mortgage buffers

Many borrowers are well ahead on their mortgages and determined to stay that way, according to new research from the Reserve Bank of Australia.

The RBA found that, in the September quarter, owner-occupiers with variable-rate loans had a median buffer of around 1.7 years of scheduled payments.

In other words, many borrowers have been getting ahead on their scheduled mortgage repayments by making extra payments into offset accounts and redraw facilities. That’s why the grey columns in the graph are higher than the yellow and purple ones.

“Net payments slowed in the September quarter,” due to rising interest rates, the RBA reported. However “households continued to accumulate funds” in offset and redraw.

Making extra payments into offset/redraw has two benefits. First, it gives you a buffer. Second, it reduces your interest bill, because instead of being charged interest on the outstanding value of your mortgage, you get charged on the outstanding value minus whatever savings are in your offset/redraw.

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