02 Aug 2021

Mortgage Offset Account for Investment Property

If you purchase an investment property, an offset account could save you thousands of dollars during your mortgage term. But, what is an offset account, and how is it helpful?


The Basics of an Offset Account

An offset is a type of transaction account, like a checking account. It can be linked to your mortgage loan to save you money on interest. It works by “offsetting” how much you have in the account against the amount remaining on your home loan. For instance, say you apply for a $500,000 home loan that charges 5% interest every year for 30 years. Then, you put $50,000 into your offset account. Instead of charging you interest on $500,000, your lender only charges you interest on $450,000. 


You can further reduce how much interest you pay every month by putting extra money into that account when you have additional income or want to make extra repayments. You could also put any rental income directly into that account. 


Benefits of an Offset Account

One benefit of having an offset account is that you can repay your mortgage faster, saving you thousands of dollars of interest over the loan term. It is also a transactional account, meaning you can deposit and withdraw money whenever you want. As a property investor, you can also use the account to fund any other property investments and then can claim tax deductions on the interest paid on your investment properties. 


Drawbacks of an Offset Account

Offset accounts have four significant drawbacks you should consider before applying for one:


  • There might be a fee attached to keeping the account
  • There might be higher interest rates or fees 
  • Partial offset accounts will only offset a part of the balance. 
  • A 100% offset account will offset the entire credit but can only be used with variable-rate loans.


Before applying for an offset account, you should consult with a financial expert at Mortgage House. We can sit down with you to understand your financial situation and help you decide if an offset account will be beneficial or harmful in the long run.

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