Offset Account
A transaction account linked to a home loan where the balance reduces the loan principal used to calculate daily interest.
In detail
An offset account works by reducing the effective balance on which interest is calculated. If a borrower has a $500,000 loan and $30,000 sitting in a linked offset, interest is charged only on $470,000. The loan balance itself does not change, but each interest calculation uses the lower effective figure so the borrower pays less interest and can repay the loan faster.
Offset accounts are only worth using when a borrower holds a meaningful balance. Many offset loans attract a package fee between $300 and $400 per year, which needs to be justified by the interest savings. Partial offset accounts exist but are less common and only reduce interest on part of the loan balance.
Why it matters for brokers
Offset accounts can save tens of thousands of dollars in interest over the life of a loan, but only when a client will actually keep money in them. Brokers need to match the feature to genuine borrower behaviour rather than default to it on every file.
Example in practice
A client earning $180,000 receives their salary into a linked offset account and keeps an average $45,000 balance through the month. On a $700,000 loan at 6.2 per cent, the offset saves around $2,790 in interest a year, comfortably covering the $395 package fee and speeding up loan repayment.
Related terms
Redraw Facility
A loan feature that lets a borrower withdraw extra repayments they have made above the scheduled minimum.
Variable Rate Loan
A home loan where the interest rate moves up or down over time in response to market conditions and lender pricing decisions.
Principal and Interest (P&I)
A loan repayment structure where each instalment reduces both the loan balance and the accrued interest.
Comparison Rate
A rate that combines the advertised interest rate with most standard fees to give borrowers a clearer picture of the true cost of a loan.
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