Interest on your home loan is calculated daily. If your loan balance is $500,000 and you have $50,000 sitting in your offset account, interest is charged on $450,000 — not $500,000. Over a 30-year loan at 6%, the difference in total interest paid is substantial.
An offset account works best when you keep as much money as possible in it for as long as possible. This is why many borrowers use their offset account as their primary transaction account — salary goes in, bills go out, and the balance reduces interest every day.
An offset account is a separate transaction account — money in it is accessible at any time without restriction. A redraw facility allows you to access extra repayments you have made above the minimum — but some lenders restrict access, charge fees, or can remove redraw access at their discretion.
For this reason, an offset account is generally more flexible than a redraw facility — particularly for borrowers who want reliable access to their funds. However, loans with offset accounts sometimes have slightly higher rates or fees.
For borrowers with significant savings or a high monthly cash flow, an offset account can be worth significantly more than a small rate reduction. Lendology evaluates the net benefit of an offset account for your specific loan size and savings position when comparing loans — a loan at 5.85% with a good offset may outperform a loan at 5.75% without one.
Jason and Steve are Adelaide mortgage brokers who give honest, free advice. No obligation.
The information on this page is general in nature and does not constitute financial advice. Given Finance Pty Ltd (t/a Lendology) ACN 624 144 501 is authorised under LMG Broker Services Pty Ltd ACL 517192.