What is an Offset Account? Guide for Every Home Borrower

Brisbane’s property market is tight, with median house prices sitting at about $800,000 and borrowing costs climbing after the RBA’s recent rate hikes. In this environment, every dollar you save on interest can make a significant impact on your budget and borrowing power.

In Brisbane’s fast-moving market, the flexibility and savings of an offset account home loan can help you secure your home and stay ahead of rising costs.

An offset account helps by reducing the daily loan balance used to calculate interest: if you park your savings in a linked offset account, you’ll pay interest only on the net amount. Trimming interest lowers your repayments, boosts your borrowing power on a variable-rate home loan, and frees up cash flow for a larger deposit or extra repayments.

In this article, we’ll dive more into exactly what an offset account is and how it works.

Book Your Free Offset Consultation. Unlock the full power of an offset account with expert advice from our Brisbane mortgage brokers at Kelly Brothers Finance. Call (07) 3847 9450 or head to www.kellybrothersfinance.com.au to book your free consultation!

What Is an Offset Account?

An offset account is a transaction account that sits alongside your home loan, allowing your everyday savings to work as a tool for reducing mortgage interest. 

Unlike a standard savings account that pays you interest, every dollar in your offset account is “offset” against your loan principal when your lender works out interest. So, if you owe $500,000 on a variable-rate home loan and have $50,000 in your offset account, you’ll only pay interest on $450,000.

For homebuyers, this setup means:

• Interest offset arrangement: Your savings don’t earn taxable interest. Instead, they reduce what you pay on the mortgage.
  
  
• Linked offset accounts: Most lenders offer full offset (100% of your balance offsets the loan) or partial offset options, so you can pick what suits your budget and borrowing power.
  
  
• Transaction account perks: You still get a debit card, online banking, ATM withdrawals and no redraw fees, making it just as flexible as a regular bank account.

An offset account reduces the principal used for daily interest calculations, resulting in meaningful savings over time. Those savings help you pay down your loan faster and boost your serviceability if you apply for another variable-rate home loan down the track.

How Does an Offset Account Work?

Let’s break down how an offset account works for a home loan in an example.

Sample Scenario

• Jane has a $300,000 variable-rate home loan at 5.00% p.a.
  
  
• She keeps $30,000 in her offset account, which is linked to the loan.
  
  
• Each day, interest is calculated at $270,000 rather than $300,000.

Calculation Breakdown

• Without offset:

• Monthly interest = $300,000 × (5.00% ÷ 12) ≈ $1,250
  
  
• With offset:
  
  
• Monthly interest = $270,000 × (5.00% ÷ 12) ≈ $1,125
  
  
• Monthly savings: $1,250 − $1,125 = $125
  
  
• Annual saving: $125 × 12 = $1,500

By trimming interest this way, Jane effectively reduces her repayments and speeds up how fast she chips away at the principal, without sacrificing ready access to her cash.

Boost Your Repayment Power. Feel stuck in your mortgage repayments? Ask our Brisbane mortgage brokers at Kelly Brothers Finance how an offset account can help. Call us at (07) 3847 9450 or visit www.kellybrothersfinance.com.au to find out more!

How to Open and Use an Offset Account

Setting up an offset account is straightforward, and a few simple steps can put you on the path to significant interest savings. Here’s how to get started:

1. Check Your Eligibility

Most lenders require a principal & interest home loan and usually cap your Loan-to-Value Ratio (LVR) at around 80%. They’ll also review your credit history, income and existing debts to make sure you can handle the extra account alongside your mortgage.

2. Gather Your Documents

You’ll need proof of identity (driver’s licence or passport) and evidence of income such as payslips or tax returns. Having your current home loan statement and details of any personal loans or credit cards handy speeds up the approval process.

3. Compare Lenders and Products

Compare interest rates and fees, including comparison rates and any monthly or offset feature fees charged by banks such as ANZ, NAB, or Westpac. Decide whether a full or partial offset facility suits you, and check for transaction perks, such as a Visa Debit or Platinum Debit Mastercard.

4. Work with a Mortgage Broker

A good mortgage broker, like the team at Kelly Brothers Finance, can shop around on your behalf, comparing offset account features, fees and interest rates across multiple lenders. They’ll also help you understand the fine print, like any redraw facility conditions, and guide you through the application process from start to finish.

5. Submit Your Application

Apply online via your chosen bank’s internet banking portal, with your broker’s assistance, or visit a home lending specialist in the branch. You’ll need to sign off on the terms and conditions and review the Financial Services Guide before final approval, which typically takes just a few business days.

6. Link, Activate and Get Started

Once approved, your offset transaction account will automatically reduce your home loan principal on a daily basis. Order your debit card, set up e-banking, and arrange for your salary to be paid directly into the offset account so you can begin saving interest straight away.

Tips for Maximising Your Offset Account

• Channel Your Salary: Have every pay run land in your offset account to immediately reduce your daily loan balance.
  
  
• Deposit Lump Sums: Park bonuses, tax refunds or inheritances in the offset to unlock instant interest savings.
  
  
• Use It as Your Daily Account: Pay bills and make everyday purchases from your offset to keep the balance high and maximise savings.
  
  
• Limit Big Withdrawals: Avoid large cash-outs just before repayment dates so you don’t erode your interest-saving buffer.
  
  
• Track Your Progress: Use a home loan repayment calculator to see how extra deposits and rate changes shorten your loan term.

Tailored Offset Solutions. Don’t let rising rates hold you back. Let our Brisbane mortgage brokers at Kelly Brothers Finance tailor an offset account solution to suit your needs. Reach out on (07) 3847 9450 or learn more at www.kellybrothersfinance.com.au!

Frequently Asked Questions (FAQs)

How does an offset account work for a home loan?

Your offset account balance is deducted from your home loan principal each day before interest is calculated. You only pay interest on the net amount, so the more you keep in your offset, the less interest you owe.

What are the pros and cons of an offset account?

Pros: Lower interest payments, faster loan payoff, full access to your funds via debit card or online banking, and no taxable interest earned. Cons: Some lenders charge a monthly or Offset Feature fee, and you need to maintain sufficient balances to see real savings.

Can I offset 100% of my mortgage?

Many lenders offer full offset facilities that let you offset up to 100% of your loan balance, but others only allow partial offset (e.g., 20–80%). Always check the product’s Terms and Conditions and comparison rate to confirm.

Is it better to keep money in an offset account or a savings account?

An offset account effectively “earns” you savings at your home loan interest rate, which is typically higher than savings account rates, and those savings aren’t taxed. A savings account pays you interest that’s usually lower and must be declared on your tax return.

How much interest could you save with an offset account?

Savings depend on your balance and interest rate. For example, $30,000 in an offset on a 5.00% p.a. loan saves you about $125 a month—around $1,500 a year—by reducing the principal on which interest is charged.

What’s the difference between an offset account and a redraw facility?

An offset account sits outside your loan and reduces interest daily, while a redraw facility lets you withdraw any extra repayments you’ve made into the loan itself. Offset funds are more accessible (via debit card or online banking) and deliver immediate interest savings.

Conclusion

Offset accounts can be a game-changer for homebuyers who want to cut interest costs without locking away their savings. 



Our mortgage brokers, based in North Brisbane and proudly serving the wider Brisbane area, are ready to guide you through every step and tailor an offset solution that suits your budget. Reach out today for a free consultation (no jargon, just clear advice) and see how much you could save. 

Call us at (07) 3847 9450 or visit www.kellybrothersfinance.com.au to get started.