Offset Accounts Explained

Offset Accounts Explained

An offset account is a transaction account linked to your home loan. The balance in the offset account is used to reduce the amount of interest charged on your loan.

For example, if your home loan balance is $600,000 and you have $50,000 in your offset account, the lender generally calculates interest on the net balance of $550,000.

The money in the offset account usually remains accessible, similar to a normal everyday bank account. You can generally deposit your salary, pay bills, transfer money, and use the account for everyday expenses.

Offset accounts can be useful for borrowers who want to reduce interest while keeping access to their savings. This can suit homeowners who maintain savings, receive regular income, or want flexibility rather than paying all surplus funds directly into the loan.

A key benefit of an offset account is that it may help reduce the total interest payable over the life of the loan. If your repayments remain the same, more of each repayment may go towards reducing the loan principal instead of paying interest.

Offset accounts are commonly available with variable rate home loans. Some lenders may offer limited or partial offset features on fixed rate loans, but this varies between lenders and loan products.

Banks with Multiple Offset Accounts

Some banks allow borrowers to have multiple offset accounts linked to a home loan. This can be useful for budgeting, as borrowers may separate money into different accounts for wages, bills, savings, tax, holidays, renovations, or emergency funds.

For example, some lenders allow up to 10 offset accounts to be linked to an eligible home loan. NAB says its multiple offset arrangement can use balances across up to 10 linked transaction accounts to reduce the home loan balance used for interest calculation. Westpac also states that borrowers can link up to 10 offset accounts to eligible loans. Macquarie notes that some eligible borrowers can have multiple offset accounts linked to the same variable rate loan account.

The benefit of multiple offset accounts is mainly organisation. Instead of keeping all savings in one account, borrowers can separate funds while still reducing home loan interest. This may be particularly helpful for self-employed borrowers, investors, or households managing several spending categories.

However, not all offset accounts are the same. Borrowers should check whether the offset is a full 100% offset account, whether it is available on the selected loan type, whether fees apply, and whether multiple offset accounts are included or charged separately.

Which Loan to Offset

If you have more than one loan split, it is important to consider which loan should have the offset account attached.

In many cases, borrowers may prefer to offset their non-deductible home loan first, such as the loan on their own home. This is because interest on a personal home loan is generally not tax deductible, whereas interest on an investment loan may be deductible, depending on the borrower’s circumstances.

For example, if you have a home loan and an investment loan, it may be more beneficial to offset the home loan first. This can help reduce non-deductible interest while preserving the tax position of the investment debt.

The right structure depends on your loan purpose, tax position, future plans, and whether you may convert your current home into an investment property later. Borrowers should obtain tax advice before making decisions that could affect deductibility.

Frequently Asked Questions