What Is an Offset Account?
An offset account is a transaction account linked to your home loan. The balance in the account is offset against your loan principal when calculating interest.
How It Works
Let's say you have:
- Home loan balance: $500,000
- Offset account balance: $50,000
Instead of paying interest on $500,000, you only pay interest on $450,000 (the difference). The more money you keep in your offset, the less interest you pay — every day.
How Much Can You Save?
With $50,000 in an offset on a $500,000 loan at 6.00% over 25 years, you could save approximately:
- $82,000 in interest
- 3.5 years off your loan term
Offset vs Redraw Facility
| Feature | Offset Account | Redraw Facility |
|---|---|---|
| Access to funds | Instant (like a bank account) | May have delays or fees |
| Tax (investment loans) | Funds not mixed with loan | Can complicate tax deductions |
| Day-to-day use | Yes — use as your main account | Less practical for daily banking |
Who Should Use an Offset Account?
An offset account is most valuable if you:
- Have a reasonable savings balance ($20,000+)
- Use it as your main transaction account (salary deposited here)
- Have an investment property (preserves tax deductibility)
Things to Watch Out For
- Some lenders charge higher rates for offset account loans — ensure the savings outweigh the rate difference
- Offset accounts are typically available on variable-rate loans; less common on fixed rates
- Partial offset accounts (where only a portion offsets) are less effective
Ask a Loan Rocket broker to compare offset account loans to find the best combination of rate and features.