Should I pay off my mortgage or leave money in my offset account?

Pay off mortgage or offset

Sometimes it makes better financial sense not to pay off your home loan.

It might seem counterintuitive to delay paying off your home loan any longer than necessary. But 100% offset accounts, which reduce the amount of interest you pay on your home loan, can actually give you a good reason to keep your mortgage a bit longer. Because an offset account can cancel out the interest you would normally pay on your mortgage, you could be better off using your money to invest rather than paying off your home loan. Let's take a look at a case study.

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Max’s Mortgage

Mortgage vs offset - maxMax has $150,000 left to repay on his mortgage and still has 20 years of the 30-year loan term remaining. He also has $150,000 saved in a linked 100% mortgage offset account.

On one hand, Max could use the money in the offset account to pay out the rest of his loan. This would mean that he would own his home in full and could start saving for the future with a clean slate.

But Max’s current situation also presents another opportunity. Thanks to the balance in the offset account cancelling out his outstanding debt, Max doesn’t have to pay any interest on the loan amount. So rather than paying off the loan in full, he could keep making his regular loan repayments and then access the $150,000 in the offset account to invest. He can also put the money he is saving on interest repayments into a high-interest savings account to further boost his savings balance.

Compare variable rate 100% offset account home loans

Offset accounts could potentially save you thousands in mortgage repayments over the life of your home loan.

Rates last updated September 25th, 2018
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.54%
3.58%
$0
$0 p.a.
80%
Get a competitive rate, save on fees and access a 100% offset account plus redraw facility. $900 cashback offer.
3.64%
3.65%
$0
$0 p.a.
80%
Adding an offset account costs $10 a month. Go from application to approval in as little as 20 minutes with a variable rate loan from this innovative online lender.
3.72%
3.74%
$0
$0 p.a.
80%
Save on interest by taking advantage of a 100% offset account along with no ongoing fees or application fees.
3.68%
3.82%
$0
$10 monthly ($120 p.a.)
80%
Get double Velocity Frequent Flyer Points with this mortgage to spend on flights and more (for a limited time, subject to eligibility requirements). Redraw facility available on this variable rate home loan. Competitive interest rate.
3.71%
3.71%
$0
$0 p.a.
70%
A variable rate home loan that has a lot of flexible features. This loan has a 100% offset account.
3.68%
3.70%
$0
$0 p.a.
80%
This loan offers a competitive variable rate and a 100% offset account to help save you on interest repayments.
3.64%
3.65%
$0
$0 p.a.
80%
Fast, 100% online application process. Very limited fees. Optional offset account (with fee).
3.74%
4.13%
$0
$349 p.a.
90%
Get a sharp rate plus package discounts and a 100% offset account.
3.75%
4.00%
$0
$248 p.a.
70%
Borrowers with a 30% deposit can get this competitive rate.
3.72%
4.10%
$0
$395 p.a.
80%
New borrowers or refinancers can get a discounted rate with this package loan. Bonus $1,500 cashback for refinancers.
3.69%
4.54%
$0
$395 p.a.
90%
A fixed rate loan with a 100% offset account and the option to make additional repayments. Loans over $150k receive a discounted rate. NSW, QLD and ACT residents only.
3.64%
3.78%
$0
$10 monthly ($120 p.a.)
80%
Earn double Velocity Frequent Flyer Points on your mortgage for a limited time (subject to eligibility requirements). Plus, access a 100% offset account to save on interest.
3.81%
3.81%
$0
$0 p.a.
80%
A home loan with a competitive rate and plenty of handy features. This product comes with a 100% offset account.
3.59%
4.19%
$0
$10 monthly ($120 p.a.)
90%
Get a low discounted rate for 2 years plus a 100% offset account. And you can get the loan with a 10% deposit.
3.70%
3.90%
$0
$0 p.a.
70%
Enjoy all the benefits of the Basic Home Loan and take advantage of an offset account.
3.73%
3.87%
$0
$10 monthly ($120 p.a.)
80%
Borrow up to $500000 and earn Velocity Frequent Flyer Points (terms and conditions apply).
3.88%
4.40%
$0
$395 p.a.
90%
Lock in a very competitive 2 year rate and get package discounts on your credit card and offset account.
3.68%
4.00%
$0
$299 p.a.
80%
Get a 100% offset account and rate discounts for higher borrowing amounts.
3.99%
4.38%
$0
$375 p.a.
90%
Package loan with a competitive rate that also comes with a 100% offset account.
3.98%
3.98%
$0
$0 p.a.
70%
Investors can get a 100% offset account and a low rate if they have a big deposit. 100% online application process.
3.76%
4.15%
$0
$395 p.a.
90%
A high maximum LVR home loan with redraw facility and additional payments. Get this mortgage with a 10% deposit.
3.79%
3.79%
$0
$0 p.a.
80%
Access an offset account and pay no application or ongoing fees on this special variable rate for owner-occupiers.
3.97%
3.99%
$0
$0 p.a.
80%
Package your owner occupied loan with investment loan and receive a discounted investment rate. 100% offset account included.
3.88%
3.89%
$0
$0 p.a.
90%
Save on interest with a free 100% offset account and buy your property with just a 10% deposit.
3.69%
4.12%
$0
$395 p.a.
80%
Unlock a range of savings with this competitive package home loan offer. Offset account and redraw facility included.
4.18%
4.18%
$0
$0 p.a.
80%
Investors get a 100% offset account and pay no application or ongoing fees on this loan from an innovative online lender.
3.93%
3.94%
$0
$0 p.a.
80%
This investment loan keeps fees low, has a sharp interest rate and comes with a 100% offset account.
3.84%
4.18%
$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.
3.69%
4.08%
$0
$349 p.a.
90%
Package your loan with other AMP products and save on rates and fees.
4.31%
3.95%
$0
$0 p.a.
80%
Adding an offset account costs $10 a month. A variable interest-only loan for investors. Fast application, low fees, optional offset account. 100% online lender.
3.99%
4.86%
$0
$0 p.a.
80%
Access a fee-free 100% offset account and pay no application or ongoing fees.
4.65%
5.02%
$0
$395 p.a.
95%
No application fee and 100% offset account. Refinance to this loan and you could get $1,500 cashback.

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Pros and cons of keeping money in your offset account

There are benefits and drawbacks to each of Max’s options in the case study above, and they’re worth closer examination to help reach the right financial decision.

Pros

  • Access to funds. This approach allows you to access the money in your offset account to invest in shares or other property, to pay off other debt or even to fund renovations.
  • No interest. Thanks to the funds in your offset account, you won’t have to pay any interest on the outstanding loan balance.
  • Cash buffer. If you pay the mortgage off in full, this means you have no money in your offset account to access in an emergency. Keeping money in your offset account allows you to create a rainy day fund that provides protection against the uncertainties of the future.
  • Future opportunities. You may decide in the future to use the money in your offset account to help fund the purchase of another property and turn your current home into an investment property. In this case, the interest repayments on your outstanding loan balance could be tax deductible.

Cons

  • The property isn’t yours. The bank still has a claim to your property until you pay the loan amount off in full.
  • Complicated. Many people prefer to pay their mortgage off in full and have the weight of debt lifted from their shoulders. This allows them to clear the financial slate and then start saving for the future.
  • Inflation. Due to the effect of inflation, the “real value” of the savings in your offset account will decrease over time.
  • Fees. The lender may charge fees in order to maintain your offset account, and there may also be ongoing fees that apply to your loan.

Whether or not you will be better off paying off your loan or keeping the money in your offset account depends on a range of factors, including your financial circumstances and how you feel about keeping a mortgage in place for any longer than necessary. Chat to a financial planner to get advice tailored to your personal situation and needs.

Images: Shutterstock

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2 Responses

  1. Default Gravatar
    RajJune 23, 2017

    I have a home loan of $400,000 an offset of $400,000 with redraw amount of $200,000. Will it be beneficial for me to transfer $200,000 from the offset account to home loan account and use the balance $200,000 in the offset account for other investments?

    • Default Gravatar
      JonathanJune 24, 2017

      Hi Raj!

      Splitting your money from the offset account so that some of it goes to an investment is never discouraged, as long as you know it might give more money in the long-run. :)

      You can consult our financial advisers to help you decide on this matter based on your situation.

      Hope this helps.

      Cheers,
      Jonathan

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