Offset accounts
What is an offset account and how can it shave time and money off your mortgage?
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You can enjoy a home loan with a 100% offset account and no application fee as well as a competitive interest rate. You can borrow up to 80% of the property's value.
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- Comparison rate of 3.56% p.a.
- Application fee of $0
- Maximum LVR: 80%
- Minimum borrowing: $150,000
- Max borrowing: $500,000
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What is an offset account?
An offset account is a bank account attached to your home loan. Every dollar you keep in your offset account reduces (or offsets) the total remaining loan amount as long as it's in there. This means you pay off the loan faster and pay less interest.
Putting money into an offset account is like making extra mortgage repayments, except you can withdraw the money and spend it when you need to.
How do offset accounts work?
Here's an example:
- Your mortgage is $150,000.
- You have an extra $20,000 saved up, which you put into the offset account.
- Now your lender charges you interest on $130,000.
- Your monthly repayment stays the same, but you're repaying the loan faster and paying less interest.
In this hypothetical situation, interest is applied to $130,000 instead of the full $150,000 owed. It's really all about speed. The offset account money acts like extra mortgage repayments, which shortens the life of your loan. And a shorter loan means less interest paid.
Offset account calculator
Use our calculator below to calculate the time and interest you can save on your mortgage when you put some money into an offset account.
All you need to do is enter:
- Your mortgage details
- The money you will put into the offset account
- How far into your mortgage you currently are in years
That last point is important. If you put $10,000 into your offset account and leave it there for a decade you'll enjoy a bigger benefit than if you only saved it in the last year of the loan.
Here's an example using the calculator above.
- Your mortgage is $150,000 and your interest rate is 4%. The loan term is 30 years.
- Your monthly repayment is $716
- But you decide to put $20,000 into the loan's offset account. Now you only pay interest on $130,000.
- Your monthly repayment stays at $716, but if the money stays in your offset account you'll repay the loan in under 26 years and save $37,856 in interest.
Can I withdraw money from my offset account?
Yes. It functions like just a normal savings account, except the money doesn't generate interest. So you could park your emergency savings (if you have any) in your offset account and reduce the amount of interest you pay right away. But if you suddenly need the money you can just pull it out again.
If you take the money out of your offset account you start paying more interest again. But you would still see a benefit from keeping the money in the offset account for some time.
Partial vs 100% offset
Most offset accounts are 100% offsets. Every dollar in the account offsets the loan principal in full.
But some mortgages come with partial offset accounts. With these accounts, you could put $1 in the offset and it would only offset 40% of the dollar. Partial offset accounts are less common and are sometimes found in fixed rate mortgages.
Common questions about offset accounts answered
Do my repayments get smaller with an offset account?
No, your repayments will stay the same with an offset account. What will change is the proportion of the amount of your repayment which goes towards the loan amount and the amount that goes towards interest.
Because the offset account lowers the interest due on your loan, more of your repayment goes towards the actual loan amount, known as the "principal".
Does my mortgage need to be from the same lender as my offset account?
Yes. The offset account is linked to the mortgage and must come from the same lender.
Does an offset account earn interest?
No. Unlike the money in a normal bank account, you don't earn interest on the money in an offset account. But savings interest rates are usually lower than mortgage rates and your loan principal is probably much bigger than your savings, so offsetting the mortgage principal will usually save you more money than you could generate in interest.
Is a redraw facility the same as an offset account?
No. They can function in a similar way because a redraw facility allows you to pull extra repayments out of your mortgage. The extra repayments lower your interest (same as offset savings) and you can still use the money as required.
But a redraw facility is much less flexible or convenient than an offset account.
Can investors use offset accounts?
They can and there are a variety of strategies they can use. Read more about how investors can use offset accounts.
I heard there's a tricky way to use a credit card and maximise my offset savings?
Yes, there is. You need a credit card with a long interest-free period and you need to be disciplined. Essentially, you do all your spending on your credit card and have your salary paid straight into your offset account. You keep all the money there offsetting your interest. Then, when your credit card repayment is due, pay it all off.
This works because the more money you put in your offset and the longer you save it there, the greater the benefit. Just make sure you keep your spending under control and pay your card off before the interest kicks in. Read more about the credit card with offset saving strategy.
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Ask an Expert
Can your deposit sit in an offset account? For instance if I were to purchase a $650K property using a loan of $400K plus savings of $250k as deposit, could that $250k deposit money sit in an offset account thus reducing the interest chargeable amount to $150k?
Hello Kat,
Thank you for your inquiry.
Unfortunately, it is not as an offset account is a transaction account that can be offered as part of your home loan package and can be withdrawn anytime and not locked in. The initial deposit you have paid for the property is already on the lender’s books.
If you wish to have an offset account connected to your mortgage, we advice that you speak to your lender of choice or to a mortgage broker to see your options. They can lay down the numbers you need to have a clearer view.
Hope this helps.
Cheers,
Jonathan
Hi,
Currently I have mortgage that is splitted to a variable and a fixed loan. The variable has an offset account. My question is that what are the benefits of using an offset instead of putting the savings into the variable account.
Example, I have 20K savings, and -40K in the variable account. If I put 20K into the variable account, the balance is -20K, so the effectively, the interest rate paid is the same as using the offset account.
Could you please help?
Thanks.
Hi Danny,
Thank you for contacting finder. We are a comparison website and general information service, we’re more than happy to offer general advice.
Offset accounts are commonly associated with variable rate home loans, but the competitive nature of the home loan market means this feature is available with some fixed rate home loans. These home loans can provide the stability of a fixed interest rate and reduce the amount of interest you pay at the same time. While this repayment method is suitable for borrowers who have just entered the market, such as first home buyers, using this home loan as a hedging strategy may not be as effective. Variable interest rates fluctuate according to economic conditions and unless you’re an economic expert, predicting when interest rates fall or rise is no easy task. Either way you’ll still have the benefit of the offset account to reduce your principal. Now, offset accounts are considered to be deposit products. Therefore, they are considered investment accounts. In order to determine whether an offset account is better for you or not, you should not take any information provided within this article as financial advice. Rather, you should discuss your situation with a licensed financial advisor and work out whether an offset account might be right for your own personal financial situation or not.
I hope this helps.
Cheers,
Danielle
What happens if you have more money into your offset account than you have owing on your mortgage?
Is there an upper limit to the amount of money you can have in an offset account?
Hi Di,
Thank you for your question.
If your offset account balance is bigger than your outstanding mortgage, your loan payments will be applied fully to the principal. This is because your mortgage will not accrue interest at this point. Kindly note that the balance of this offset account doesn’t earn interest.
As for the balance limit, it would be best to check this with the bank or lender as they might have set a maximum limit.
I hope this has helped.
Best regards,
Liezl
If you are on interest only loan and have 100% offset attached. how the repayments would be affected. As an example you have a loan of $400,000 for years @ 4% with repayment of 1333.33. if you have another 20,000. How the repayments would work. From the above example, repayments don`t change, then how the 20K offset balance help?
Hi Raj,
Thank you for your question and for contacting finder.com.au we are a financial comparison website and general information service we are not mortgage specialists so can only offer general advice.
Usually, with the interest-only offset, the balance in your offset savings account is offset against the amount owing on your home loan. For instance, you owed $400,000 on your mortgage and at the same time you had a $20,000 balance in your linked offset savings account, you would only be required to pay interest on an amount of $380,000.
You can find more information on this interest-only offset account home loan on this page.
Hope this has answered your question.
Cheers,
May
How does a visa card off set account work.
Hi Steve,
Thank you for your comment on finder.com.au, a financial comparison website.
The Visa debit-card is simply the type of card you may be able to attach to your offset account to allow you access to the funds you have put in there if you need it, it would still function as your typical offset account in terms of any funds you have deposited in this account working to help save you interest on your home loan.
Regards
Jodie
Hi,
Whats the difference between leaving money in an Offset Account and just paying off the loan with that money?
I appreciate the Offset money is readily available and can be used like a transaction account, but is there a difference in interest saved or time saved in paying off the loan?
Hi Chris,
Thanks for your enquiry.
An offset account reduces the overall interest payable against your outstanding loan balance as it effectively ‘offsets’ the amount of interest you pay on your mortgage.
For instance, if you have a 100% offset account and have $10 000 in savings in the account and your mortgage balance is $300 000, your interest charges will be calculated on the balance of $290 000.
There are many benefits to keeping funds in your offset account rather than your home loan, such as the fact that accessing money through a redraw can come with minimum redraw amounts and fees which could make an offset more attractive than making additional repayments on your mortgage.
On this page, you can use our home loan offset calculator to estimate how much an offset account could reduce your interest payable and how it reduce the time taken to repay your loan.
Thanks,
Belinda
Hello,
I would like to know who can check my bank loan interest
Hi Gary,
thanks for the question.
You can check how much interest you’re paying on your home loan by looking at your most recent bank statement. Alternatively, you can also call your lender to see what your current rate is.
I hope this helps,
Marc.
Hi
My PPOR has now turned into an IP ? I have a fixed loan of approx $170k and a variable loan (VL) of approx $135K. I currently have approx $70k in savings. I also have an offset a/c to use if necessary.
I’m unsure whether to continue using my existing savings in the offset a/c (currently 4.85%) and pay off the loan (I currently have the capacity to pay $3k per month in addition to my mortgage repayments) but I believe as a result of this method, it will reduce the loan interest and each year my income tax will potentially increase. I believe my other option is to use my existing savings and put them in a high interest savings acct (currently 4.02%) and deposit my additional monthly savings there, thereby the loan interest remains as high as possible for a better tax deduction and I will also pay minimal income tax on the savings earned.
Hi Irons78,
Thanks for your question.
Unfortunately finder.com.au can only provide general advice regarding the products we display.
The nature of your enquiry comes under financial advice, please consult your trusted financial planner or certified mortgage broker.
All the best,
Shirley
Can withdrawals be made from an offset mortgage account or is it locked in for a period of time or notice needs to be given etc.?
thanks
Hello Robyn,
thanks for the question!
Most offset accounts function like a transaction account, meaning you get a linked debit card which you can use to make withdrawals or payments at any time.
I hope this helps,
Marc.
I don’t have an offset account for my loan, but all money I have sitting on the loan. Are those available funds are doing a same job in offsetting the interest on the loan or there is a difference?
What is better?
Thanks
Hi Miro,
Thanks for your comment.
Since you don’t have an offset account with your home loan the money in your loan won’t be offsetting the interest on the loan.
To determine whether an offset account is right for you, please see this page.
Hope this helps,
Shirley