An offset account is a transaction or savings account linked directly to your home loan. Any money you keep in your offset account is “offset” against your loan balance when calculating interest, meaning you pay interest on the difference.
For example, if you have a $500,000 home loan and $50,000 in your offset account, you’ll only pay interest on $450,000 – potentially saving you thousands of dollars over the life of your loan.
Let’s look at a real example:
You pay interest on $400,000
You pay interest on $370,000
Over a 30-year loan, those savings compound significantly – potentially reducing your loan term by years and saving you tens of thousands in interest.
Most lenders offer 100% offset accounts, where every dollar offsets your loan balance dollar-for-dollar. Some lenders offer partial offset accounts (such as 50% or 60% offset), which provide proportionally less benefit. We always recommend 100% offset accounts where available to maximize your savings.
Offset accounts typically come with variable rate loans and may have slightly higher interest rates or annual fees compared to basic home loans without this feature.
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However, if you maintain a reasonable balance in your offset account, the interest savings usually far outweigh any additional costs. Our brokers can help you calculate whether an offset account will benefit you based on your typical savings balance and spending patterns.
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