Extra Tax Benefit In New Mlc Home Loan

A new home loan service from MLC Building Society, combining a mortgage facility with a tax-effective savings vehicle, will help customers to pay off their loans more quickly and to make substantial interest savings.

With MLC Building Society's Home First service, customers can have their salary deposited directly to their home loan account and can arrange to have money transferred to other accounts as required, to meet weekly cash needs or to pay bills.

In other words, the home loan account acts as a pseudo transaction account.

While surplus salary remains in the account, it is offset against the outstanding balance on a customer's home loan, hence saving interest on a daily basis. In effect, customers earn an after-tax return equal to the home loan interest rate.

This was much more tax-effective than putting surplus salary into a savings account, where you paid tax on your interest earnings at your marginal rate, said MLC Building Society's marketing manager, Ms Alison Teale.

The Home First product was also an improvement on traditional mortgage offset accounts where the interest rate was usually far less than the standard home loan rate.

(With a mortgage offset account, a separate savings account, the interest earned on the account is offset against a customer's home loan interest bill.)

And the Home First facility offered a lot more flexibility than a so-called "redraw" facility, Ms Teale said, another concept pioneered by MLC Building Society.

With a redraw facility, those who make more than the minimum repayment on their home loans can withdraw any of the extra repayments at any time. And while the extra repayments stay in the home loan account, they generate an after-tax return equal to the home loan interest rate.

But, unlike the new Home First service, most "redraw" facilities stipulate a minimum withdrawal amount and/or charge a fee on each withdrawal.