When borrowing off a financial institution, what are the advantages & disadvantages of borrowing your maximum and using an offset account type set up?

Hi Micheal,

advantages: You havent sunk your money into the loan. Your funds are available in an offset and you can use it to increase your investment portfolio by putting towards another property.

disadvantages: you'll generally pay mortgage insurance above 80% LVR. Interest rate may be higher above 80-90% LVR depending on lender.

So it's a choice based on your risk appetite and how quickly do you want to build your investment portfolio?

Hi Michael,

Having cash in an offset account for a rainy day or future investment help's some people sleep at night, it can also be disastrous if you're not disciplined

Per Erol's comment's, if you are borrowing more than 80% of your property value you will generally pay Lenders mortgage insurance (LMI). If you're ok with that, it's important to note that LMI premiums vary depending on your loan to value ratio (LVR)

Example 1 - If you're borrowing 85% of your property value, you may pay an LMI premium of circa 1.25% of the loan amount. That would equate to $5,355 on a $425,000 loan amount

Example 2 - If you're borrowing 90% of your property value, you may pay an LMI premium of circa 2.13% of the loan amount. That would equate to a premium of $9,585 on a $450,000 loan amount

Note: The numbers in the above examples are estimates only, LMI premiums can and do vary depending on a number of factors

If you are borrowing additional funds, you'll generally have to provide your lender with a stated purpose. The level of detail required will vary between lenders and LVR.

Bias aside, it's a great idea to talk to a Broker or finance specialist when planning for change. A good broker can help you weigh up your current and future goals and put a strategy in place to help you achieve them.

Have great day,

Gerry Ardesi

Hi Michael, I will give you an example of a loan that is settling next week. Refinancing home loan consolidation of two other debts and cash out for renovations. The cash will not be used until December this year, rather then applicants apply again later they are getting the cash now and will park in the offset account until they need the funds. This means they will not pay interest on the funds until they are required & do not need to reapply for a principle increase later saving fees. All the best

Great question Michael,
There are some great answers allready but I would also like to mention that it is important to consider your personality.
Some people are able to utilse the offset account and reduce their interest costs. But there is a group of people who see the money in the offset account as savings and unfortunately tend to spend it.
For these clients we often suggest they don't use an offset but rather borrow the minimum and keep their savings seperate.
Hope this helps.
Awesome Lending Solutions