Should I pay down my mortgage or use an offset account?

Which option works better to payoff the mortgage faster and with lesser interest?
Repaying a chunk of our mortgage in a lump sum or maintaining the same amount of money in an offset account?

Say I have a mortgage of 700k for 30 years at 2.7% interest rate. And say I have 50k to either repay as a lump sum of put it in an 100% offset account.

I understand that the offset account offers more liquid funds but which option works better to payoff the mortgage faster and with lesser overall interest amount or both the options work the same? Please advise.

 

The key is in the questions you don't know to ask: is there a chance I will move out of this place in the future, and keep it as an investment property? Common when you upgrade or move for schools or work.

What is different between redrawing on the loan for a deposit on a new PPOR, and using the offset balance as a deposit for a new PPOR?

 

They are different though achieving a similar result of reducing interest charged.

Paying your mortgage directly will reduce the balance (accessing your funds require an application bus redraw, use of funds may not be deductible)

Offset amount is accessible without application.

 

It should be the same interest and the same result.

but debt recycling by paying down the loan and reborrowing to invest can greatly speed it up.

 

Would active debt recycling be faster than just paying extra off the homeloan, even if your goal was just to pay off all debt? So once all PPOR debt has been converted to investment debt, you'd sell the investments to pay off the investment debt.
Surely it would take longer if after you converted it all you then kept the investment whilst paying off the debt?

 

Dig a little deeper, and the problem is with the question itself.
The question asks which is the fastest way to pay off debt?
Taking a step back, why is paying off debt a good thing? If you want to build wealth, it probably isn't.
Debt/leverage is one of the few tools the average person has to build wealth.

 

It depends. If you had borrowed further to buy and want to keep those assets then you might have paid off your non-deductible debt but still have investment debt. But you could have potentially sold those assets much earlier and paid off all debt

 

Putting extra money in offset (instead of paying down the loan) works in your favour if you are reasonably good with your finances. You can take advantage of debt-recycling as @Terry_w mentioned. You control the money, not the bank.

On the other hand, if you have bad spending habits or if you are an impulsive buyer who tends to spend available cash on un-necessary items then reducing your loan would be a better option in long run. Once money is paid back into loan it leaves you at the mercy of bank's policies should you need that money in future for any purpose.