Unlike a traditional savings account, an offset account is linked to your mortgage, with the balance reducing the principal balance on which you’re charged interest.
For instance, if you have a $500,000 investment loan and $50,000 in an offset account, your interest will be calculated on $450,000 instead of the full loan amount. This can translate to substantial savings over the life of the loan.
Beyond simple interest reduction, offset accounts offer flexibility because you still have access to the funds in the offset account. In comparison, making extra repayments directly into your home loan often means those funds are locked into the loan.
This can be beneficial for managing unexpected expenses or using the funds to take advantage of a new investment opportunity. Some investors even use it as a form of cash flow management to help pay for expenses associated with their investment property, like renovations or maintenance.
However, there are some potential drawbacks to consider. Some lenders charge higher rates or fees for offset accounts, so it's important to weigh the benefits against the costs.
Working with a skilled mortgage broker can help you find the solution that suits your needs.
If you are unsure if an offset account is the right loan feature for your financial situation and long-term investment goals, click here to discuss your scenario with a mortgage broker.