Offset accounts

An offset account is an everyday transaction account linked to your mortgage that can help borrowers reduce the interest charged on their mortgage and potentially pay off their loan sooner.

This feature is typically only offered on variable-rate home loans, although some lenders offer it on selected fixed-rate mortgages.

How does a mortgage offset account work?

The balance in the mortgage offset account can be used to offset your loan balance; you will be charged interest only on the difference.

For example, if you owed $600,000 on your mortgage and had $40,000 in your offset account, interest would be charged on $560,000. This would allow you to pay off your mortgage faster, as a smaller share of your repayments would be allocated to interest and a larger share to paying down your principal.

As with a regular transaction account, you can deposit and withdraw money whenever you choose; the more money held in it, the less interest you will owe.

Some lenders may even allow you to have more than one linked account, so you can separate savings and money used for daily transactions.

It is important to note, however, that these accounts can carry additional fees that may reduce the cost-savings benefits. Also, keep in mind that not all options are the same, so it is advisable to understand each lender’s offer.

Advantages	Disadvantages
Interest savings: Can reduce monthly interest charges to help pay off your loan sooner. Access: Instant, penalty-free access to your funds for daily expenses or emergencies. Flexibility: Ability to make extra repayments to potentially reduce your loan term.	Account fees: The feature often comes with a home loan package fee or monthly account fee. Higher interest rates: Home loans with this feature may carry slightly higher interest rates than basic loans without features. Requires maintaining a balance: The financial benefit must exceed the ongoing fees to be worthwhile.

Not sure if you need an offset account or a redraw facility?

FAQs.

What is the difference between a partial and a 100% offset account?

A 100% offset account offsets every dollar in your transaction account against your loan balance (e.g., $10,000 in offset reduces a $500,000 loan balance to $490,000 for interest calculations). A partial offset account only offsets a percentage of your balance. Most major Australian lenders offer 100% offset accounts.

Can I have multiple offset accounts linked to my home loan?

Yes, many lenders allow you to link multiple sub-accounts (e.g., for daily spending, emergency savings and bill buckets) to a single variable home loan. The combined balances across all accounts work together to reduce your total interest.

Is the interest saved through an offset account taxable?

No. According to the Australian Taxation Office (ATO), because the account reduces the interest payable on your mortgage rather than paying you interest income, the savings are not classified as assessable income.

Can I get an offset account on a fixed-rate home loan?

This feature is primarily offered on variable-rate home loans. However, a select group of lenders offer it on fixed loans, or you can split your loan into variable and fixed to link an offset account to the variable portion.

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