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Offset accounts
A home loan with an offset account gives you somewhere to keep your cash, pay less interest and still have money to spend when you need it.
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An offset account is one of the most useful mortgage features available. It's really just a bank account linked to your home loan. But here's the big difference: every dollar you store in your offset account will reduce your loan principal as long as it's there.
You can compare mortgages that come with offset accounts in the table below. Read on to learn how offsets can save you thousands of dollars and wipe years off your mortgage.
State Custodians Low Rate Home Loan with Offset
State Custodians Low Rate Home Loan with Offset - LVR up to 80% (Owner Occupier, P&I)
2.65 %
p.a.
variable rate
2.67 %
p.a.
comparison rate
State Custodians Low Rate Home Loan with Offset
A low rate variable home loan offer available with no application and ongoing fees. Includes 100% offset facility.
- Interest rate of 2.65% p.a.
- Comparison rate of 2.67% p.a.
- Application fee of $0
- Maximum LVR: 80%
- Minimum borrowing: $100,000
- Max borrowing: $2,000,000
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).
After entering your details a mortgage broker from Aussie will call you. They will discuss your situation and help you find a suitable loan.
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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.
If you save one dollar in your offset account and your loan amount is $200,000, your lender will calculate your daily interest charges on $199,999 as long as that dollar remains in the offset.
An offset account is an extremely useful feature because it lets you build up savings, spend cash when you need it and repay your home loan faster. Crucially, not all mortgages come with this feature.
How does a home loan offset work?
Let's say you have a $500,000 mortgage with an interest rate of 3.00% (full details below) and $20,000 in savings. Your mortgage would ordinarily look something like this:
Example mortgage
- Loan amount: $500,000
- Loan term: 30 years
- Interest rate: 3.00%
- Monthly repayment = $2,108
- Total loan cost (including interest) = $758,887.26
But then you decide to move the $20,000 into your loan's offset account after 12 months of making repayments on your loan.
- Monthly repayment = $2,108
- New loan term: 28 years and 11 months
- Total loan cost (including interest) = $732,442.61
- Interest savings with offset = you will pay $26,444.65 less in interest over time
Your loan amount is now offset to $480,000. Assuming you leave your $20,000 saved in the offset and don't spend it, you'll finish your mortgage over a year earlier and pay $26,000 less in interest.
Quick offset tips
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.
- Add 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.
- Add often. If you can add extra savings into your offset account regularly you'll simply save even more in interest.
- Withdrawals. If you need to pull money out of your offset you can, and it's easy to do so. This will readjust the calculation on your loan repayments. But having the money in your account for any amount of time will provide some benefit.
Offset account calculator
Use our calculator below to estimate the time and money an offset account can 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 examples
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 | Rate | Offset savings | Interest saved | Years saved |
|---|---|---|---|---|
| $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 repayments or put the cash into an offset?
At first glance an offset account seems similar to making extra repayments on your mortgage and using a loan's redraw facility to pull money out as needed. In both situations you get a reduction in interest charges, pay off your loan faster and still have access to your money. In theory.
But an offset account actually offers you more flexibility and control. 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 and make it harder for you to access the money.
Some lenders gradually fold your extra repayments back into your loan balance, meaning you can't access as much as you thought.
Learn more about redraw vs offset
Money in an offset also gives you greater tax deductions if you convert a home to an investment. It also makes it easier to sell your home and buy a new one.
Selling your old home and buying a new one
It's hard to time the sale of your old home so it lines up with the purchase of a new one. And until your home sells you won't have a deposit to cover the new purchase. Many buyers in this situation take out a bridging loan.
But if you have been making extra repayments into your offset account you can simply pull this money out to cover your deposit. This gives your more time to sell and buy without worrying as much about timing.
Turning your home into an investment
Let's say you decide to convert your current home into an investment property and buy a new home. If you have paid off most of your mortgage you can't claim as much of the interest costs of your loan back on tax when turning the property into an investment.
But if you've put all the money into an offset account instead of extra repayments you can pull it all out to buy your new home and gain a full interest deduction.
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 issues you should be aware of.
- No interest gained. Unlike a savings account money in an offset account won't generate interest for you. But saving interest from a mortgage will generally net you a bigger gain than a savings account rate anyway.
- Some offsets aren't really offsets. Some lenders may simply label your extra repayments as an offset when it's really 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 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 for four years and then spend it to buy a car your loan amount will re-adjust and you will pay more interest again. But every day money sits in your offset will produce some benefit to you.
- Your rate could be higher with an offset. Many lenders offer their lowest mortgage rates on "basic" products that don't have an offset account. And they offer a mortgage with an offset account with a higher rate. Our suggestion: shop around for a loan that has both a low rate and an offset account.
More articles and guides on offset accounts
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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