All-in-One / Offset Mortgage for Investment Property

[Andrew Horner]

Hey there, 

I'm considering an Offset Mortgage (also known as All-in-One loans, or Accelerator mortgages). My understanding is that this has not been allowed in the US until recently do to tax reasons, but is more common in Canada and Australia. I bought our home last year (FHA), and am looking to buy our first rental while staying in our house.

Benefits:
• Money paid toward mortgage is as liquid as a checking account.
• Lower risk and higher return (I think) than with aggressively paying down my home mortgage.
• Lowers risk associated with a month or two without tenant payments.
• Easy to leverage into buying another property next year.

Costs:
• High interest rate
• Variable interest rate. Tied to 1-month LIBOR... which I know nothing about, but claims to trend, on average, lower than 30-Year rates. 

The associated line of credit would not be used for personal expenses unless perhaps there was a crisis of some kind (a real one, not like a car repair). Instead it would act as funds available for that business in case of a month or two of no-pay by a tenant, or house repairs.