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LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
5.69% p.a.
6.11% p.a.
$2,319
Principal & Interest
Variable
$0
$1,576
95%
5.88% p.a.
6.38% p.a.
$2,367
Principal & Interest
Variable
$350
$0
90%
5.95% p.a.
6.23% p.a.
$2,385
Principal & Interest
Variable
$299
$0
80%
5.95% p.a.
5.95% p.a.
$2,385
Principal & Interest
Variable
$0
$0
90%
5.98% p.a.
6.42% p.a.
$2,393
Principal & Interest
Variable
$350
$0
90%
5.98% p.a.
6.35% p.a.
$2,393
Principal & Interest
Variable
$395
$0
80%
5.99% p.a.
6.34% p.a.
$2,396
Principal & Interest
Variable
$395
$0
80%
5.99% p.a.
5.99% p.a.
$2,396
Principal & Interest
Variable
$0
$0
95%
6.00% p.a.
6.03% p.a.
$2,398
Principal & Interest
Variable
$0
$0
80%
6.04% p.a.
6.09% p.a.
$2,408
Principal & Interest
Variable
$0
$500
95%
6.08% p.a.
6.14% p.a.
$2,419
Principal & Interest
Variable
$0
$840
90%
6.09% p.a.
6.46% p.a.
$2,421
Principal & Interest
Variable
$390
$0
60%
6.09% p.a.
6.10% p.a.
$2,421
Principal & Interest
Variable
$0
$498
80%
6.10% p.a.
6.13% p.a.
$2,424
Principal & Interest
Variable
$0
$0
95%
6.13% p.a.
6.47% p.a.
$2,432
Principal & Interest
Variable
$399
$0
70%
6.14% p.a.
6.39% p.a.
$2,434
Principal & Interest
Variable
$248
$350
60%
6.59% p.a.
6.97% p.a.
$2,552
Principal & Interest
Variable
$395
$200
70%
6.99% p.a.
7.07% p.a.
$2,659
Principal & Interest
Variable
$8
$0
80%
7.24% p.a.
7.24% p.a.
$2,726
Principal & Interest
Variable
$0
$160
80%
7.84% p.a.
8.16% p.a.
$2,891
Principal & Interest
Variable
$395
$0
95%
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Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of .

What is a mortgage offset account?

An offset account works like an everyday banking account linked to a home loan that allows borrowers to reduce their loan interest and potentially pay off their mortgage faster.

With an offset account, you will only be charged interest on the difference between the loan balance and the amount in the offset account.

Typically, offset accounts are limited to variable-rate home loans, but some lenders do offer this feature as part of their fixed-rate packages.

How does a mortgage offset account work?

Offset accounts work by linking a transaction account to a home loan — the balance in the transaction account is offset against the outstanding loan amount, reducing the interest charged on the home loan.

When you apply for a home loan, you can request to have an offset account linked to it. The offset account is usually set up as a separate transaction account with the same financial institution that holds your home loan.

You can deposit your savings, salary, or any other funds into your offset account. The balance in this account is then subtracted from the outstanding loan amount when your lender calculates interest charges.

For example, if you have a home loan of $500,000 and an offset account balance of $50,000, you'll only pay interest on $450,000.

By reducing the loan amount on which interest is calculated, the offset account helps save on interest costs. This can lead to significant savings over the life of the loan and potentially shorten the loan term.

The good thing about an offset account is that the funds deposited in it remain accessible for withdrawals and transactions. You can use the account for everyday expenses, bill payments, or any other financial needs.

Keep in mind, however, that the more money you keep in the offset account, the greater the interest savings on your home loan.

What are the types of mortgage offset accounts?

There are typically two types of offset accounts: 100% and partial offset accounts.

The most common type is the 100% balance offset account. Being 100%, this means the total offset account balance is subtracted from the outstanding loan amount before interest is calculated.

At the opposite end of the ladder is partial offset accounts, where only some of the loan balance is offset from interest costs. For instance, if you had $50,000 in a 50% partial offset account, the account would only offset the interest costs on $25,000 of the outstanding loan balance.

There are also partial offset accounts where the interest you accrue is at a lower rate than what is charged on your loan. In this case, it is possible for you to have a 3% interest for your offset account while having a loan interest rate of 5%.

How much can you save with a mortgage offset account?

How much you can save with an offset account depends on three factors: your loan balance, the funds in your offset account, and the current interest rate of your loan.

To illustrate how much you can save, let us use assume that you have a $500,000 outstanding loan amount at 6.75% p.a. and a 30-year term, and an offset account balance of $25,000. For this example, let us assume that your offset balance remains the same for the life of the loan.

The table below shows a simple computation of the interest you will have to pay with and without an offset account. The calculations are made using a mortgage repayment calculator.

Interest paid over the life of the loan

 

Without an offset account

With offset account

Outstanding balance

$500,000

$500,000

Offset account balance

n/a

$25,000

Balance charged with interest

$500,000

$475,000

Monthly Repayment

$3,242.99

$475,000.00

Total interest paid

$667,476.45

$634,102.48

Savings overall the life of the loan with offset account

$33,373.97

As indicated above, you will be able to save $33,373.97 in interest when you keep your $25,000 intact on your offset account for the life of the loan.

Typically, interest in an offset account is calculated daily — this means that if you regularly add funds to your offset account, you will be able to increase your interest savings.

Overall, your potential savings from using an offset account will increase depending on how much funds you regularly put in your stash.

What are their advantages?

The biggest benefit of using an offset account is to reduce the interest you pay on your mortgage and potentially shorten the amount of time needed for you to repay your loan.

Here are the advantages of using an offset account:

Interest Savings

The primary advantage of an offset account is the potential interest savings it offers. By depositing funds into the offset account, you will be able to reduce the interest charged on your home loan. This can lead to significant savings over the life of the loan, especially if you are able to save significantly.

Flexibility

Offset accounts provide you with flexibility in managing your finances. Funds deposited in the offset account remain accessible, allowing you to withdraw or deposit money as needed. This flexibility is particularly beneficial for those with irregular income or unexpected expenses. Also read: Repayment flexibility versus rate

Tax Efficiency

Unlike the interest earned on regular savings accounts, the money saved on mortgage interest through an offset account is not considered taxable income. This tax advantage can be particularly appealing for individuals in higher tax brackets.

Faster Mortgage Repayment

By reducing the interest charged on the home loan, offset accounts enable you to make additional payments towards the principal amount. Over time, this can accelerate the repayment process and potentially lead to mortgage-free homeownership sooner.

What are their disadvantages?

Perhaps the biggest disadvantage of having an offset account is the higher interest rate attached to the home loan. There are also lenders who charge fees to use the offset feature.

Some offset accounts may have ongoing fees associated with their maintenance. These fees can vary from one financial institution to another, so it's crucial to review and compare the fee structures before opting for a particular account.

Factors to consider when getting a mortgage offset account

Offset accounts can significantly help you in your home loan journey, but you must consider several factors before asking you to get one.

First, you will need to take into account your loan amount and interest rate. Consider the size of your loan and the interest rates offered by various lenders. Calculate the potential interest savings an offset account could provide and compare it with the additional costs, such as higher interest rates or account fees.

You will need to have financial discipline. Offset accounts work best when you consistently maintain a positive balance. If you struggle to save or you tend to dip into your savings regularly, an offset account may not be the most effective option for you.

Also, check on your financial goals. If your primary objective is to pay off your mortgage quickly, an offset account can be a valuable tool. However, if you have other financial goals, such as investing or saving for a specific purpose, it's crucial to evaluate whether an offset account aligns with those objectives.

How to maximise their benefits

To take full advantage of your offset account, the biggest thing you can do is to deposit regularly or keep the funds in your offset account intact.

Consistently depositing funds into the offset account ensures a higher average balance, leading to more significant interest savings. Consider automating regular deposits to make it easier to stay on track. You can have your salary credited to your offset account.

 If you want to make the most out of your offset account, you will also need to avoid using it for day-to-day transactions. Maintain a separate transaction account for everyday expenses to ensure that the offset account balance remains unaffected.

You can also seek professional advice —a qualified financial advisor or mortgage broker can provide personalized guidance based on your unique circumstances and help you determine if an offset account is the right choice for you.

Overall, offset accounts offer a range of advantages for Australian borrowers. The potential interest savings, flexibility, and tax efficiency make them an attractive option for individuals looking to manage their mortgages more effectively.

However, it's crucial to consider the disadvantages, such as higher interest rates and account fees, and evaluate the specific factors applicable to your financial situation. By carefully weighing the pros and cons, considering your goals, and following the tips provided, you can make an informed decision about whether an offset account is the right financial tool for you.

Offset Home Loans FAQ

Find helpful answers to some of the most frequently asked questions about offset home loans.

An offset account is considered an asset - it is a transaction account linked to your mortgage, and the balance in the offset account contributes to reducing the overall interest payable on the mortgage. As your balance in the offset account increases, your net liability (the effective amount you owe on the mortgage) decreases.

There are no definite rules when it comes to how much you can save in your offset account but the more funds you have in your account, the greater the interest savings on your home loan. However, the ideal amount to put in your offset account depends on your financial situation, goals, and other investment opportunities. It is generally advisable to keep a sufficient emergency fund and consider other financial goals before depositing all available funds into the offset account.

There are two main types of offset accounts: 100% Offset Account where the full balance of the offset account is subtracted from the home loan balance when calculating interest and Partial Offset Account where only a portion of the offset account balance is offset against the home loan balance.

An offset home loan is a mortgage product that combines a traditional home loan with a linked offset account. The funds held in the offset account are used to offset the outstanding loan balance for the purpose of calculating interest. This arrangement can lead to significant interest savings for borrowers over the life of the loan.

An offset home loan account offers several benefits, including the following:

  • Interest Savings: The balance in your offset account is offset against your home loan balance, reducing the amount on which interest is calculated. This can lead to substantial interest savings over the life of the loan.
  • Faster Loan Repayment: With lower interest payments, you can pay off your loan faster, as more of your payments go towards reducing the principal.
  • Flexibility: You can access the funds in your offset account whenever needed, providing financial flexibility.
  • Tax Efficiency: Interest earned in your offset account is not typically subject to tax, unlike other types of savings.
  • Reduced Loan Term: By reducing the interest component, you may be able to shorten the loan term and save on overall interest costs.

Yes, while offset home loans offer many benefits, there are some potential risks to consider like higher interest rates and fees. You may also incur opportunity costs as the funds in your offset account could potentially be invested elsewhere for higher returns.

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