If you look at the interest rate you're paying on your mortgage and compare it to the one you are receiving on your savings, you're probably paying a lot more than you're getting!
In particular, compare the after-tax earnings rate on your savings to your mortgage interest rate. Wouldn't it be nice to earn your mortgage rate on your savings? With a Green Account you can, and save on your income tax too!
Let's assume you have a $300,000 mortgage and a savings account with a $10,000 balance.
If your $10,000 in savings had earned a 3% annual percentage yield, at the end of one year you will have gained $300 in interest on which you will have to pay $100 to the taxman (if you're in the 33% effective income tax bracket).
So, depending on your tax rate, you may end the year having gained just $200 on your $10,000 savings balance.
The Green Account Advantage
A significant benefit of Green Account flexibility is that savings can be transferred into your Green Account mortgage at any time to reduce your outstanding loan balance. If you put $10,000 from savings into your $300,000 mortgage, you'll only have to pay interest on $290,000.
If your Green Account mortgage charges an assumed 5.50% interest rate, what you will have done instead is to have saved yourself $550 in annual mortgage interest expense, effectively enabling you to pay down your mortgage more quickly.
Of course, your Green Account mortgage interest expense may be tax deductible*.
Again assuming a 33% effect tax bracket, having paid $550 less in tax-deductible mortgage interest expense means you would have to pay $181.50 more in taxes. That’s still a net after-tax benefit of $381.50, resulting in $168.50 or 84% more than you would have earned by keeping your funds in savings.
Couldn't this work with any mortgage?
Not if you ever needed to access your savings. The primary reason to keep funds in savings is so that you can assess it later if and when it is needed.
Unlike extra principal payments to traditional mortgages (that reduce your loan balance, but that you can’t get back), each Green Account deposit increases your remaining available credit (the difference between your credit limit and your outstanding loan balance), and you can access your funds later whenever you want.
In fact, you would probably have greater accessibility to your funds with a Green Account than with savings. To earn higher rates of interest on your savings, you’d need to lock it up in a longer-term CD or other investment.
Funds you place in your Green Account are more liquid than a term savings account because they are immediately accessible by check, ATM, debit card or any other way you would normally access your checking account funds.
Also, even after making an extra principal payment to a traditional mortgage, your traditional mortgage payment amount is unchanged - regular contractual minimum monthly payments must still be made.
With the extra payment having increased your flexible Green Account’s remaining available credit, you can opt to pay less or even take a payment vacation so long as you are within your credit limit.**
And, unlike traditional mortgages that charge a monthly rate of interest on the prior month’s ending balance, Pacific Trust Bank’s Green Account interest charges are calculated daily based on each day’s ending account balance.
That means you immediately benefit from reduced finance charges on the lower account balance beginning the day of your deposit.
America’s first flexible and fully-transactional mortgage account – the Green Account.
* Interest rates and tax rates used herein are representative examples only, yours may be different. Please consult your tax advisor about potential tax deductibility of mortgage interest expenses.
**Note: When the Green Account outstanding loan balance remains below the credit limit, monthly finance charges are added to the account balance, but no payment from the borrower is required.
Click here for more information about the Green Account. Or, talk over your home financing needs with a Pacific Trust Bank loan officer. We're here to help. Call us toll-free at (877) 441-BANK.
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Pacific Trust Bank is an equal housing lender.
