Offset Account Explained

Written by 
Bill Tsouvalas
Bill Tsouvalas is the managing director and a key company spokesperson at Savvy. As a personal finance expert, he often shares his insights on a range of topics, being featured on leading news outlets including News Corp publications such as the Daily Telegraph and Herald Sun, Fairfax Media publications such as the Australian Financial Review, the Seven Network and more. Bill has over 15 years of experience working in the finance industry and founded Savvy in 2010 with a vision to provide affordable and accessible finance options to all Australians. He has built Savvy from a small asset finance brokerage into a financial comparison website which now attracts close to 2 million Aussies per year and was included in the BRW’s Fast 100 in 2015 as one of the fastest-growing companies in the country. He’s passionate about helping Australians make financially savvy decisions and reviews content across the brand to ensure its accuracy. You can follow Bill on LinkedIn.
Our authors
, updated on November 25th, 2021       

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If you’re thinking about saving up money for your home loan, that will help you diminish the amount of interest you pay monthly while at the same time reducing the loan’s life. The perfect solution to that is establishing an offset account.

What is an offset account?

An offset account adheres to your home loan. It functions as a regular bank account – you can choose to save money in it, keep your monthly salary and withdraw money whenever you need for your regular expenses. An offset account is meant to aid you to decrease the interest you pay on a monthly basis. For example, let’s say that you have a home loan encompassing the appreciative sum of $500.000, and your offset account contains $50.000. In this situation, your interest will be balanced at $450.000.

Increasingly more homeowners opt for an offset account. They do so because home interest rates are higher than 5 percent in comparison with a savings account that presents an interest below 4 percent.

The benefits of an offset account

By presenting a convincing sum of money in your offset account, you can significantly reduce thousands of dollars out of your home loan. Consequently, offset accounts come with a wide range of benefits for every homeowner. You will be able to cut down on your mortgage interest even if you manage to save large or small sums of money.

In this view, it is advisable to consider opting for offset transaction accounts that embody no balance limit, which allow you to save money as you continually diminish your home loan term. Additionally, there is also the option of offset accounts allowing you 100 percent of your overall finances to balance against your home loan.

Does every home loan offer an offset account?

Flexible home loans offer the borrower a range of additional alternatives, including repayments option, redraw option and an offset account. Generally speaking, you will be required to pay an increased interest to benefit from all these additional options. Still, regardless of this fact, as an offset account allows you to save money and reduce the life of the home loan, it presents a set of advantages. However, our advice is to weigh carefully the pros and cons and take into account the individual features of your financial situation.

Compared with flexible home loans, fixed home loans provide you with security concerning the amount of money you need to pay monthly. Still, they don’t come with an additional offset account. In this view, a viable alternative is dividing your loan by fixing a certain amount of the loan while leaving the option of the remainder variable open. Separating the loan will allow you to establish a variable offset account.

Is an offset account beneficial for me?

Be it the situation you can’t afford paying extra additional repayments, an offset account offers you an effective solution to significantly reduce both your loan interest and reduce the life of the loan. While it may make it difficult for you to cope with other financial aspects of your everyday life, an offset account will help you save thousands of dollars. If you wish to find out more information concerning this particular aspect, you ought to discuss with a professional, to understand your financial situation better.

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