A Smarter Emergency Fund

Financial advisors often recommend that clients maintain a contingency fund

With anywhere between six to twelve months of income set aside in case of emergency. The amount of money in such an account can be sizeable, and the opportunity cost of keeping such a balance in a low-yielding investment can be significant.

In the AIO, available equity can be used as emergency reserves in the case of losing one’s job or facing unforeseeable financial hardship. Funds are available immediately and repayments are always flexible. Low-interest cash reserves are no longer necessary because the AIO account can be one’s safety net, should the need arise.

This explains why foreclosure rates in countries where offset mortgages are more popular are so much lower than they are in the United States: if one loses their job, a rigid and expensive mortgage payment can become a serious burden, and unless there is an emergency fund, the threat of foreclosure looms large.

Missing three months of mortgage payments starts that process, and in the U.S. once that starts, only 2% of borrowers are able to avoid foreclosing.

The tragic effects of foreclosure and the ensuing damaged and derogatory credit can all be mitigated by simply having the safety net of an AIO.