How a mortgage offset account works
An offset account makes your savings work against your loan, without locking them up.
An offset account is a transaction account linked to your home loan. Each day the lender takes the offset balance off the loan balance before it works out interest. Your savings stay in your account and you can withdraw them, but you pay interest only on the difference.
A simple example
With a $600,000 loan at 6.2% and $50,000 in offset, you are charged interest on $550,000 instead of $600,000. That's $3,100 a year less in interest at the start, and the saving grows as more of your repayment goes to principal.
What it can do over a whole loan
| No offset | $50,000 in offset | |
|---|---|---|
| Monthly repayment | $3,675 | $3,675 |
| Interest stops after | 30 years | 24 years |
| Loan fully repaid after | 30 years | 25 years 2 months |
| Total interest | $722,933 | $508,260 |
| Interest saved | $214,673 |
Offset or paying extra?
Extra repayments into the loan have the same interest effect as an offset balance, but redraw rules vary and some loans don't let you take the money back out. An offset gives you easy access to your money in an emergency. Check for package fees, because a yearly fee can eat into small savings.
✨ Key Takeaways
- An offset reduces the balance that interest is charged on.
- Your money stays accessible.
- The bigger and longer the balance, the bigger the saving.
- Compare the package fee against the interest saved.
Open the offset account calculator →