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Offset accounts
Pay less interest, own your home sooner and access your money when you need to with an offset account. Our senior editor of home loans explains how it works.
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An offset account is a type of bank account that is linked to your home loan, which allows you to "offset" any savings you have against your mortgage interest. While you don't earn any interest on the money in your offset account, you do avoid paying mortgage interest on the total balance of your offset – which allows you to pay more into your loan principal. Read on to Learn how an offset account can save you thousands and wipe years off your mortgage, and compare mortgages that come with offset accounts in the table below.
Macquarie Bank Offset Home Loan Package - LVR ≤ 60% (Owner Occupier, P&I)
2.49 %
p.a.
variable rate
2.76 %
p.a.
comparison rate
Macquarie Bank Home Loan Offer
Macquarie Bank Offset Home Loan Package - LVR ≤ 60% (Owner Occupier, P&I) is a low interest rate loan with no application fee and ongoing fee.
- Interest rate of 2.49% p.a.
- Comparison rate of 2.76% p.a.
- Application fee of $0
- Maximum LVR: 60%
Compare home loans with offset accounts
The loans in the table below all have offset accounts (keep in mind that some may charge a small offset account fee).
What is an offset account?
An offset account is like a bank account, but instead of earning interest for you, it reduces the interest you pay on your mortgage. Every dollar you store in your offset account will reduce the amount of interest you pay while it's in your account. This means interest will be calculated on a smaller principal amount, saving you money.
You don't earn any interest on an offset account. Instead, the amount of savings you have in your offset reduces the amount of mortgage interest you pay. This is usually a much higher interest rate than you would earn in your bank account.
If your loan amount is $200,000 and you save $1 in your offset account, your lender will calculate your daily interest charges on $199,999, as long as that dollar remains in the offset account. Obviously, the more money you have in your account, the greater the benefit and the financial savings will be.
An offset account is an extremely useful feature because it lets you build up your savings account, access and spend your cash when you need it, and repay your home loan faster.
Crucially, not all mortgages come with this feature. You need to make sure you get a loan that is eligible to have an offset account attached to it in order to benefit from this feature.
How much can you save with a home loan offset?
Let's say you take out a $500,000 mortgage with an interest rate of 3.00% and a 30-year loan term. Your mortgage would ordinarily look something like this:
Regular mortgage (no offset account)
- Loan amount: $500,000
- Interest rate: 3.00%
- Loan term: 30 years
- Monthly repayment: $2,108
- Total loan cost (including interest) = $758,887.26
Mortgage with an offset account
Let's say 12 months into your mortgage, you save some money and you get a tax refund. Suddenly, you have access to $20,000 in savings. Some homeowners may choose to pay this full amount into their mortgage, which could be a smart financial move that helps you own your home even sooner.
However, if you'd like to continue to have access to that money in case of emergencies or unexpected expenses, you could move the $20,000 into your home loan's offset account.
Your monthly repayment will remain the same – you're now just paying less interest and more of the principal each month. The amount of interest you have to pay overall is reduced because it's based on a loan balance that is $20,000 lower.
- Loan term remaining: 29 years
- Monthly repayment: $2,108
- Total loan cost (including interest) = $732,442.61
- Interest savings with offset = $26,444.65 less over the life of the loan
Assuming you leave your $20,000 saved in the offset and don't spend it, you'll pay around $26,000 less in interest. Also, because you're paying less interest and more principal in each repayment, you'll pay the home loan off sooner. In our example, you'll own the home outright one year and one month sooner than you would without the offset account.
How to save the most money with an offset account
How much you can save using an offset account depends on multiple factors including your loan amount, interest rate, how much money is in the offset account, when you put it there and how long it stays there.
But there are a few things you can do to maximise your savings when using an offset account:
- Add money early. If you add $10,000 to your offset account at the start of a 30-year loan, it will save you more than if you added that money five years into the loan. Any amount, even $1,000, will have an impact over the long-term.
- Add money often. If you can add extra savings into your offset account regularly, you'll save even more in interest. If you can, have your salary or wages paid directly into your offset account, so your money is offsetting your interest during the month (before you spend it!).
- Limit withdrawals. If you need to pull money out of your offset account, you can, and it's easy to do. It's just like withdrawing money from any bank account. This will readjust the calculation on your loan repayments, so try to keep as much money in the account as you can. For example, pay bills on the last possible due date, so your money is offsetting your interest for a few more days.
Offset account calculator
Use our calculator below to estimate how much time and money an offset account could save you. Just enter your mortgage details, the amount you will put into the offset account and how far into your mortgage you currently are.
Offset savings calculation: How much could you save?
Here are some hypothetical mortgage scenarios showing how much time and money a single amount of cash in an offset account can save you. Note that all these estimates assume a 30-year mortgage, with the offset money saved two years into the mortgage.
| Loan amount | Interest rate | Offset savings | Amount of interest saved | Years saved on your 30-year loan term |
|---|---|---|---|---|
| $350,000 | 3.25% | $34,000 | $44,710 | 2 years, 5 months |
| $450,000 | 2.59% | $50,000 | $47,378 | 2 years, 2 months |
| $600,000 | 2.90% | $40,000 | $46,405 | 1 year, 7 months |
| $800,000 | 3.00% | $50,000 | $61,141 | 1 year, 6 months |
Should I make extra mortgage repayments or put the cash into an offset?
At first glance, using an offset account seems similar to making extra repayments on your mortgage and just using your loan's redraw facility to pull money out as needed. In both situations, you get a reduction in interest charges, you pay off your loan faster, and you still have access to your money – in theory.
But an offset account actually offers you more flexibility and control. The key difference is that money in an offset account belongs to you. Extra repayments belong to your lender. Redraw facilities can come with restrictions or fees, and your lender can change the rules at their own discretion and make it harder for you to access the money.
Money in an offset account may also gives you greater tax deductions if you convert your home into an investment property.
Learn more about redraw vs offset
How an offset account works when... selling your old home and buying a new one
It's hard to time the sale of your old home so that it lines up with the purchase of a new one. And until your home sells, you may not have a deposit to cover the new purchase. Many buyers in this situation take out a bridging loan.
But if you have an offset account and you've been making regular payments, you may have access to enough savings to withdraw and use as a deposit on your next property.
How an offset account works when... turning your home into an investment
Let's say you decide to convert your current home into an investment property while you buy a new home.
If you have paid off most of your mortgage, that means you won't have many interest expenses to claim at tax time. You could then end up paying extra tax, as the rental income you receive for your investment property will be added to your own taxable income.
But if you put your savings into an offset account instead of making extra repayments towards your loan, you can withdraw those savings at any time. This means you'll be paying maximum interest again, all of which is tax deductible on an investment loan. You can then use your savings to help you purchase your new owner occupier home.
What if my offset savings are equal to my loan amount?
If you save enough money, over many years, your offset savings could eventually equal the amount that you owe on your home loan. This is obviously a great position to be in! But you have to decide what to do next.
You've essentially paid your mortgage off and if you want to end the home loan, you can move the offset savings over to the loan and then discharge the mortgage. Now you're debt-free.
However, all of your offset savings have now been spent. If this is the bulk of your savings, you will suddenly be very low on cash, which leaves you financially vulnerable if an emergency or unexpected expense arises.
You could decide to repay most of the loan, leaving some savings accessible while you repay the final loan amount. Or you could keep going with all of your savings off-setting your loan. This means that every mortgage repayment you make will just be paying down the loan's principal, and you won't be paying any interest at all.
If you're not sure what the best option is for you, consider speaking to an experienced mortgage broker.
Are there any disadvantages to using an offset account?
There aren't really any big downsides to using an offset account, but there are some considerations that you should be aware of.
- No interest earned. Unlike a savings account, money in an offset account won't generate interest for you. Saving interest from a mortgage will generally net you a greater gain than a savings account rate, although with mortgage interest rates currently so low, it might be worth investigating the most competitive savings account offers to see which saves you more money.
- Some offsets aren't really offsets. Some lenders may simply label your extra repayments as an offset, when it's actually a redraw facility. This means you have less access to the money. Check that your lender is an authorised deposit-taking institution (ADI) and that your lender is part of APRA's Financial Claims Scheme.
- Partial offsets. Some offset accounts don't offset the amount deposited by 100%. These are called partial offsets and they are much less beneficial for the borrower.
- Offset money only reduces your loan while it's saved. If you save $20,000 in an offset account for four years and then spend it to buy a car, your loan amount will re-adjust and you will pay the higher rate of interest again. Every day that money sits in your offset, it will produce some benefit to you.
- Your interest rate could be higher with an offset account. Some lenders offer their lowest mortgage rates on "basic" home loan products that don't have an offset account. When they offer a mortgage with an offset account, they may charge a higher interest rate. This is why it's important to shop around for a loan that has both a competitive interest rate and an offset account.
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Important Information*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 advise 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!
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.
Please feel free to read our through our Interest-only offset accounts for more details.
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.
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.
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 do not have an offset account with your home loan, the money in your loan will not be offsetting the interest on the loan.
To determine whether an offset account is right for you, please use the offset calculator to help you further.
I also recommend getting in touch with a licensed mortgage broker. A broker can help you understand your financial position and they can leverage their panel of networks to find a lender that is more inclined to review your application.
Hope this helps,
Shirley