Interest-Only Home Loans with Offset Accounts

An interest-only home loan with an offset account can give you greater control of your debt.

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Interest-only home loans reduce your monthly repayments. These loans offer a set period, generally 1 to 5 years, during which you only pay the interest portion of your mortgage while leaving the principal untouched.

Adding an offset account to an interest-only home loan can give you greater control over your mortgage debt while freeing up funds for investment.

Compare interest only loans with offset accounts

Data indicated here is updated regularly
$
years
Name Product Interest Rate (p.a.) Comp. Rate^ Application Fee Ongoing Fees Max LVR Monthly Payment
ING Orange Advantage Loan
3.55%
3.88%
$0
$299 p.a.
80%
$678.82
Get a fully-featured loan with a 100% offset account and discounts for higher borrowing amounts.
ING Orange Advantage Loan
3.59%
3.91%
$0
$299 p.a.
80%
$682.18
Get a 100% offset account, access to a redraw facility and a competitive rate tied to your LVR.
ANZ Breakfree Home Loan Package Variable
4.34%
4.55%
$0
$395 p.a.
80%
$746.85
ING Orange Advantage Loan
3.59%
3.91%
$0
$299 p.a.
80%
$682.18
Get a fully-featured loan with a 100% offset account and discounts for higher borrowing amounts.
ANZ Breakfree Package Home Loan Fixed
2.69%
4.55%
$0
$395 p.a.
80%
$608.71
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How do interest-only loans with offset accounts work?

An offset account works by reducing the amount you're charged in interest. It functions as a linked transaction account that you can deposit into and withdraw funds from, just like any transaction account. However, what makes offset accounts different is that the amount you're charged in home loan interest is reduced by the funds held in the offset account.

For example, let's say you have a $500,000 home loan with $20,000 sitting in an offset account. Instead of being charged interest on $500,000, your interest would be calculated on $480,000.

Adding the interest-only feature to this means you can significantly reduce your repayments. If you're only paying interest and the interest you're being charged is reduced by the funds in the offset account, you'll end up a substantially lower home loan repayment.

However, it's important to remember that during the interest-only period, you won't be reducing your debt. Because you won't be making principal payments, you'll end your interest-only period owing the same amount you originally borrowed.

Why would I use an interest-only home loan with an offset account?

Property investors like this structure because it allows them to maximise both their cash flow and tax-deductible debt.

If you're a property investor, you can deduct your mortgage interest payments from your taxes. By taking an interest-only home loan, you ensure that your entire home loan repayment is deductible. Coupling this with an offset account means you can reduce your repayments.

But interest-only home loans with offset accounts aren't just for investors. Owner-occupiers can use the loans to take more control of their mortgage debt. Rather than making a full principal and interest repayment, as an owner-occupier you can pay the interest portion and put any extra funds in your offset account. This means your repayments will continue to reduce as the balance in the offset account grows. It also means you have access to the funds in the offset account should you need them.

At the end of the interest-only period, you could use the funds in the offset account to make a lump sum repayment on the principal of your home loan. Or, you could choose to use the funds to invest.

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Westpac Flexi First Option Home Loan - Basic Variable Rate (Owner Occupier, P&I)

Up to $3,000 refinance cashback. A flexible and competitive variable rate loan. Eligible borrowers refinancing $250,000 or more can get $2,000 cashback per property plus a bonus $1,000 for their first application. Other conditions apply.

Logo for St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)
St.George Basic Home Loan - LVR 60% to 80% (Owner Occupier, P&I)

Up to $4,000 refinance cashback. With this competitive variable rate loan from St.George, refinancers borrowing $250,000+ can get up $4,000 cashback and borrow up to 90% of the property's value. (Terms, conditions & exclusions apply).

Logo for Athena Liberate Home Loan - 70% to 80% LVR Owner Occupier, P&I
Athena Liberate Home Loan - 70% to 80% LVR Owner Occupier, P&I

A competitive variable rate mortgage for owner occupiers $0 application and $0 ongoing fees. This interest rate falls over time as you pay off the loan.

Logo for Suncorp Back to Basics Home Loan - Better Together Special Offer $150k+ LVR ≤ 80% (Owner Occupier, P&I)
Suncorp Back to Basics Home Loan - Better Together Special Offer $150k+ LVR ≤ 80% (Owner Occupier, P&I)

Get a competitive variable interest rate with no application fee or ongoing fees.

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2 Responses

    Default Gravatar
    IanAugust 7, 2015

    Are you able to establish a loan P&I for 90,000. I have $80,000 can you offset that $80,000 and how much would the repayments be?
    Thanks Ian

      Avatarfinder Customer Care
      BelindaAugust 10, 2015Staff

      Hi Ian,

      Thanks for your enquiry.

      finder.com.au is an online comparison service, so we don’t offer home loans ourselves but rather compare different home loans to help you make a more informed decision.

      Above on this page you can compare a range of interest-only offset home loans and if you’d like to apply you can click the ‘go to site’ button to be redirected to the lender’s application page.

      If you’d like to estimate your mortgage repayments you can use our home loan repayment calculator on this page.

      Thanks,
      Belinda

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