Use Your Offset Account

Every home buyer should go for an interest-only loan. It doesn’t matter if you’re an investor or you’re buying for yourself. Interest-only is the way to go.

But the fact is, if you go interest-only, you're not building equity in your property. That means you can’t leverage the equity to build your portfolio.

But you don’t need to pay the principal directly to have money available for building your portfolio. Instead, you can get an offset account to do the same job.

An offset account is essentially a savings account that you attach to your mortgage. Every dollar that you put into that account lowers your principal. In turn, this also lowers the amount of interest that you’re paying each month.

For example, let’s say you’ve got a $500,000 loan and $100,000 in an offset account. In this scenario, you’re only paying interest on $400,000 of the principal.

An offset account is basically a savings account. This means that you always have access to the money that you place into it. That's what makes it different from just paying the principal. It all comes down to control.

When you’re paying the principal on your loan, all of that money gets tied into the property, which means you’re limited in terms of how you can access it.

An offset account gives you liquidity and flexibility. It gives you control over your own money instead of having it tied up in your property. You can still use that cash to lower your monthly interest payments. You can still use it to pay the deposit on another property.

But you can also use it for anything else that you need. Plus, you have control over how much money you put into the account.

— Todd Polke