Offset Accounts

A mortgage offset account is a savings or transaction account that can be linked to your home loan. The balance in this account ‘offsets’ daily against the balance of your home loan before interest is calculated. An offset account can help you cut years off your home loan term and save money on interest.

How offset accounts work

If you have a home loan balance of $500,000 and have $10,000 in your 100% offset account, you’ll only pay interest on a home loan balance of $490,000. Because your home loan interest is calculated daily, every dollar in your offset account can save you money in interest. That means more of your repayment goes towards paying down the principal, potentially helping you to repay your home loan faster.

Types of offset accounts available

• 100% offset account: 100% of the funds in your offset account are applied against your home loan balance before interest is calculated.
• Partial offset account: A partial offset means that part of the funds in the offset account are used against your home loan before interest is calculated. This can be far less effective than a 100% offset account.

Benefits of an offset account

• An offset account is easy to manage. Simply have your salary and any other income deposited into your account to have an immediate impact on the amount of interest you pay, as the interest on your home loan is calculated daily.
• An offset account offers convenience and flexibility should you need it, as the account allows transactions and transfers giving you the same accessibility as an everyday transaction account.
• Some lenders offer multiple offset accounts linked to your home loan, so you can manage your finances while still benefiting from the interest saved on your home loan. This can be a great way to save for big expenses such as a holiday or a new car while still saving on home loan interest.
• Offset accounts are usually part of a home loan package that incur an annual fee, lower interest rate and other product discounts could still help you save money.
• An offset account can be more beneficial than a savings account as the interest you may earn on a savings account is less than the interest incurred on a home loan.

Things to consider.

• There are many kinds of offset accounts, and the features will differ depending on the loan type and lender. For example, not all offset accounts are 100%, some may only be partial. Fixed rate home loans may only allow 100% offset for a set period, or other conditions may apply.
• You may incur monthly fees for having an offset account. It pays to look at the total charges associated with your home loan package to determine if having this product leaves you better off financially.
• Some lenders may require a minimum balance in the offset account.
• Weigh up the pros and cons carefully to decide if an offset account is the right product for your situation.