How does an offset account work?

An offset account is a transaction account linked to your home loan. The balance in your offset account is deducted from your outstanding loan balance before interest is calculated. For example, if you have a $500,000 loan and $50,000 in your offset account, you only pay interest on $450,000. This can save you thousands in interest and shave years off your loan term — without locking your money away. You can deposit and withdraw from your offset account freely, just like a regular bank account.

Is an offset account better than making extra repayments?

Both reduce interest, but offset accounts offer more flexibility. Money in an offset account can be withdrawn at any time with no penalty, while extra repayments on many home loans (especially fixed-rate loans) may have limits or redraw restrictions. Offset accounts are ideal if you want to reduce interest while keeping your savings accessible — for example, to cover emergencies, renovations, or investment opportunities. Extra repayments may be better if you want to reduce your loan balance permanently and are unlikely to need the funds.

Do all home loans have offset accounts?

Not all home loans offer offset accounts. They are most commonly available with variable rate home loans and some split loans. Fixed rate loans rarely include a full offset — some offer a partial offset (capped at $20,000-$50,000). Basic or no-frills home loans often do not include offset accounts, which is why they can offer lower interest rates. If an offset account is important to you, check that the interest rate difference between a loan with and without offset justifies the benefit based on the balance you plan to hold.

Offset Account Calculator

See how much interest your offset account saves on your home loan. Enter your loan details and offset balance to see annual savings, total interest saved over the loan life, and how many years you can cut off your mortgage.

Last verified: 1 July 2025

How much does a mortgage offset account actually save?

Dollars held in an offset account reduce the balance your mortgage interest is calculated on. The annual saving is roughly offset balance × loan rate. On a 6.2% variable home loan, every $10,000 sitting in offset saves about $620/year in interest — tax-free (unlike a savings account where the interest earned is taxed at your marginal rate). Source: ASIC MoneySmart.

Worked example. $500,000 loan at 6.2% over 30 years with $50,000 sitting in offset: interest is charged on $450,000, not $500,000. That saves about $3,100/year (~$260/month) and — if you keep repayments the same — cuts the loan term by roughly 3 years 8 months, a lifetime interest saving of around $95,000-$105,000. Fill the offset to $100,000 and the life-of-loan saving rises to ~$165,000.

General information and estimates only — not financial, tax, or legal advice. Always verify with a licensed adviser or the ATO.

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