Offset Accounts Explained: What Is An Offset Account?

An offset account is a type of bank account linked to your home loan in order to save you money in interest. Your account’s balance is offset against your loan balance every day. The lender sees it as if you have paid the added savings to your loan. Read on to know more about how offset accounts work, and how much you can really save by having one.

What Is An Offset Account?

The basics

The lender will charge you lower interest when you have an offset account, because they do not charge you interest on the actual remaining loan balance. These accounts may be linked to a fixed rate loan or a variable rate loan. Some home loans may even specify that the offset only applies for a fixed term, like a 100 percent offset against a one year fixed rate loan.

Benefits of an offset account

By having a decent amount of fund in your offset account, you can cut the years from your home loan, and pay up to thousands of dollars less in interest. An offset account is also easy to manage. You can have your salary deposited into a transaction account or savings account every payday, but linking it as an offset account to your loan will automatically give you savings on your monthly interest payments.

If your financial situation changes or the interest rates increase, you might be left paying extra every month. An offset account is a great way of combating huge jumps in your monthly repayments. Lastly, this account offers the flexibility you might need. If something unexpected happened, for example, you will have money readily available.

Offset accounts, in general, are a useful tool for most home owners. You get to save more money, and cut the time off your mortgage.

Types of offset account

  • 100 percent offset – full balance is used against your loan balance to lower the payable interest.
  • Partial offset – The interest created by the account is used against your current loan balance to lower the payable interest.

How to pick the right offset account

When picking an offset account, it is important to keep these tips in mind:

> An account where your total balance is offset from your existing loan
> No minimum balance
> Low or no fees
> No maximum balance limit
> The capacity to use your offset account for your needed transaction types
> The capacity to link several accounts as offset accounts into your existing loan

  • January 7, 2018