100% Offset And Redraw Home Loans

How 100% offset accounts work

Offset accounts can be excellent for reducing the time it takes you to pay off your mortgage and can save you tens of thousands of dollars in interest.

Offset accounts explained

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When you set up your mortgage, some lenders will offer you the option of an offset account. Like the name suggests, an offset account involves your savings compensating for a portion of the amount that you borrowed.

Offset home loans comparison

Rates last updated January 22nd, 2018
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Loan purpose
Offset account
Loan type
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Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.64%
3.84%
$0
$0 p.a.
70%
Enjoy all the benefits of the Basic Home Loan and take advantage of an offset account.
3.64%
3.67%
$0
$0 p.a.
80%
A low rate home loan with no ongoing fees.
3.59%
3.62%
$500
$0 p.a.
95%
A loan that combines a competitive rate with a 100% offset account.
3.64%
4.03%
$0
$395 p.a.
80%
Apply for a new owner occupier loan or refinance from another lender and receive this discounted rate.
3.68%
3.83%
$0
$10 monthly ($120 p.a.)
80%
A low interest rate home loan that allows borrowers to borrow up to 80% of the property value.
3.74%
3.76%
$0
$0 p.a.
90%
A home loan with a special rate for owner occupiers. Free offset account.
3.97%
3.97%
$0
$0 p.a.
90%
A competitive variable rate home loan with no ongoing fees.
$0
$0 p.a.
A basic low-rate home loan that still offers some useful features.
3.72%
3.74%
$0
$0 p.a.
80%
Take advantage of a 100% offset account along with no annual or application fees.
3.73%
3.73%
$0
$0 p.a.
70%
A special low variable rate for owner occupiers with 100% offset account and no application or ongoing fees.
3.74%
4.15%
$0
$395 p.a.
80%
Enjoy a discount of a competitive interest rate and 100% offset account.
3.99%
4.02%
$0
$0 p.a.
80%
A loan with a special investment rate and an offset account.
3.65%
4.19%
$500
$0 p.a.
95%
Get a discounted fixed interest rate for the first 12 months while you settle into your new loan.
3.84%
4.21%
$0
$395 p.a.
80%
Lock in a competitive rate for owner occupiers for two years. Extra repayments up to $30,000 over the life of the fixed period can be made.
3.79%
4.19%
$0
$395 p.a.
95%
A package loan that offers discounts and a 100% offset account.
3.74%
4.57%
$445
$0 p.a.
90%
A two year discounted rate which reverts to an ongoing life of loan discount afterwards.
4.19%
4.59%
$0
$395 p.a.
90%
Enjoy all the benefits of a full-featured package investment loan, including a 100% offset account.
4.34%
4.74%
$0
$395 p.a.
95%
Enjoy discounted rates to a range of NAB products.
350K NAB Rewards Points offer available. Terms and conditions apply.
4.19%
4.19%
$0
$0 p.a.
90%
Get access to a redraw facility and offset account without the annual fee.
4.39%
4.78%
$0
$395 p.a.
95%
Package your home loan to get discounts on your interest rate and other financial products.
4.57%
4.94%
$0
$395 p.a.
95%
No application fee and 100% offset account.
4.04%
4.06%
$0
$0 p.a.
90%
A home loan with no ongoing fees. This loan is available for refinances and purchases.
3.64%
3.78%
$0
$10 monthly ($120 p.a.)
80%
A competitive variable rate home loan with flexible features. You can earn 30,000 Velocity Points for every $100k you borrow (for a limited time, subject to eligibility requirements).
3.99%
4.99%
$0
$395 p.a.
95%
A package home loan with fee free extra repayments available during the fixed term.
4.40%
4.80%
$0
$395 p.a.
80%
A discounted variable loan package for under $500 000 home loans.
3.85%
4.95%
$0
$395 p.a.
95%
A discounted package rate for owner occupiers with the ability to package a Qantas rewards earning Amplify credit card. $1,500 cashback available for refinancers. Conditions apply.

Compare up to 4 providers

By leaving your money in an offset account, you have the opportunity to save far more in interest charges than you could potentially earn in interest payments.

Heidi Armstrong, Director of State Custodians Mortgage Company says that offset accounts are no more complicated than a regular transactions account. ‘An offset account is like a transaction account that can be linked to the loan. It may even be a separate sub account or portion of the loan. Instead of receiving interest on the offset account balance, those funds are 100% offset against the daily balance of the nominated loan portion.’

100% offset accounts

Title

If you owe $200,000 on your mortgage and you have $20,000 in savings in your offset account, your interest will be calculated on your mortgage balance, minus your savings balance. This means you're only paying interest on $180,000 instead of the full $200,000 that you owe.

Mortgage$200,000
Savings$20,000
With an offset account, you only pay interest on$180,000

As your savings grow, the amount you save on your interest bill also grows. Effectively, this reduces the amount of interest charged on your mortgage statement. When you consider that your repayment amount doesn't change, this allows you to pay more of each payment directly off the principal amount and less in interest costs each month.

Earning interest on savings?

While it's true you're not earning any interest on the money you leave in your offset account, you're actually gaining more than you lose. In most cases, the interest you'd be earning on your savings is lower than the amount you're charged on your mortgage. You'd also be paying tax on the amount of interest you earn, so it's reduced even further.

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How mortgages benefit from offset accounts

Every repayment you make to your mortgage is comprised of a principal portion and an interest portion. This is because your mortgage payments are reduced which means they're calculated to ensure you pay off your loan over the total loan term, as well as paying your interest charges. As your level of savings increases, the interest that you need pay decreases.

For example - How your repayments will work
Title

Assume your regular mortgage payment is made up of 90% interest payment and 10% going towards paying down your home loan balance. If you have savings in your offset account, those ratios alter so you're paying a smaller portion in interest and a larger portion on the principle balance every month.

No offset$20,000
Loan Amount$250 000$250 000
Interest Rate5.70%5.70%
Monthly Repayments1,565.221,565.22
Time Saved-2 years, 10 months
Interest Saved-29,465.55

Obviously this has the effect of paying off your home loan much faster as your savings grow. You're also drastically reducing the total amount of interest you'll pay over the term of your mortgage.

About decrypting the home loan jargon | principal and interest portions

Maximising mortgage benefits from offset accounts

Disciplined customers can maximise the effect that offset accounts can have on reducing their mortgage quickly in several ways.

Savings and offset combined
For example - Using a credit card to maximise benefits

This is simply an option to maximise the benefit of having your savings offset against your mortgage. If your credit card offers interest free days on purchases, this allows you to pay for your expenses and bills at the beginning of the month and leave your entire income sitting in your offset account. During that month, you pay no interest on your credit card debt, but your income is having the effect of offsetting your mortgage interest for a longer time, as it's sitting there untouched for that month. When your credit card bill is due, you simply transfer your money out of your offset account and onto your credit card so it's paid off in full. Because your credit card has interest free days, you don't have to worry about interest payments on that account at all.

If you don't think you'll remember to pay your bill before the due date, or if you don't want to risk it, you can ask your bank to set up an ‘auto-sweep’ option.

An 'auto-sweep' is when your bank automatically sets up a direct payment into your credit card account from your offset account for whatever amount is needed to pay down your balance to zero before the due date. You're guaranteed never to miss a payment and you don't have to try and remember due dates. It's all done for you.

If you're careful about spending less on your credit card than the amount you earn each month, you'll find that your savings will grow over time so the benefits you receive keep increasing.

Dangers of offset accounts

While it sounds relatively simple, an offset account can have drawbacks for some customers. This is especially true for those customers who choose to use the credit card option in conjunction with offset accounts and mortgages.

If you don’t use the credit card option and just accumulate the savings in your offset account, you will find that the amounts you pay interest are slowly reducing. But the temptation to spend more on your credit card than you earn is very high for some people. It's very important that you control your credit card spending to add up to less than the amount you earn.

Fred Schebesta

Director, finder.com.au

I strongly suggest that consumers should split up their products between different providers as opposed to having them with the same lender. This is key because consumers can get the best products in the market and use finder.com.au to help them compare. I would discourage people from bundling products as usually these prices are not the best.

Perhaps instead use the offset account but transfer a fixed amount to your day to day savings account to use for living expenses. This way you will maximise the extra interest that you ordinarily pay on your mortgage.

This is because your income will be used to auto-sweep your credit card bill at the end of the month. If you don't have enough funds in that account to pay off the whole balance in full, you will retain a balance on your credit card that will immediately begin attracting interest at a very high rate.

On top of this, when your offset account is cleared to pay off your credit card, you risk your account being overdrawn, or simply being emptied. This negates the value of having an offset account at all if it's empty.

But if your lender decides to overdraw your account, you could be hit with overdrawn fees, as well as hefty interest charges on your credit card account. If you really don't feel that you have the discipline to keep your credit card spending under control or if you think you'll spend more than you earn, an offset account is not recommended.

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How does a partial offset account work?

A partial offset account behaves similarly to an 100% offset account but only some of the interest is charged on your home loan, rather than the whole amount. It can also be explained as a savings account where the interest generated by the offset pays off the principal in the loan, without the borrower having to pay tax on the interest.

For Example

With a partial offset account linked to a home loan with an 8% interest rate, if you had a loan of $300,000 and a balance of $10,000 in your partial offset account, your $10,000 balance may only be earning 6% interest.

Loan$300,000
Interest rate paid on loan8%
Partial offset account$10,000
Interest rate earned on partial offset account6%

This means that you are still paying 8% interest on $290,000 of your loan, but only 2% interest on the remaining $10,000 of your loan, as this $10,000 is offset by the 6% interest earned on the balance of your partial offset account.

Interest rate paid on loan8% on $290,000
Interest rate paid of partial offset2% on $10,000
Interest rate earned on partial offset6% on $10,000

While a partial offset account saves you interest and time in repaying your mortgage, it is not going to be as effective as a 100% offset account. Unfortunately some Australian lenders only offer partial offset accounts and are yet to add 100% offset accounts to their loan features and if the lender who can approve the loan amount you need, with the remaining loan features you want only offers a partial offset account, then there is little point choosing a different loan with a 100% offset account, if it is not the right loan for you.

Keeping account fees down

One problem some customers may face when setting up offset accounts is high account fees.

Warning! Watch out for Account-Keeping Fees.

Title

You might be paying a $10 monthly account fee on your mortgage, a $10 monthly account fee on your offset account and a $175 annual fee on your credit card. Some banks may even charge transaction fees on your transaction account as well.

FeesAmount
Monthly Account Fee (mortgage)$20,000
Monthly Account fee (offset account)$180,000
Annual fee$175
Total (for a 5 year loan)$2075

This can really add up and eat into the interest savings you thought you were making. It's important to negotiate with your current lender for lower fees or shop around and compare what other lenders are willing to offer you.

Some banks may offer package deals where they'll waive the account fees and reduce the annual fee if you accept the entire package of financial products. These are sometimes called ‘professional packages’ and often charge one simple annual fee for everything you have within that package. All together, it is usually cheaper than the individual fees charged on the same accounts.

Also, consider splitting up your products between different lenders to minimise fees. For example, the Bankwest Easy Transaction Account is a completely fee free banking when you deposit at least $2,000 per month. If you have more than one transaction account or if you and your partner have different accounts, then this account is perfect for consolidating all your funds.

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Marc Terrano

Marc Terrano is a content marketer manager at finder. He's been writing and publishing personal finance content for over five years and loves to help Australians get a better deal.

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