Offset Accounts: How Do They Work, And Why You Need One

Offset accounts can be a confusing addition to any home loan or mortgage – but the good news is that when simplified, it doesn’t have to be. 

If you’re a homeowner with a mortgage, it’s pretty simple really – would you rather pay less interest on your home loan, or earn interest on the amount in your savings account? If the former is the option that sounds more appealing to you, then it might be time to consider looking into offset accounts. 

How Do Offset Accounts Work?

When set up properly, a well oiled offset account has the potential to save you thousands of dollars in interest – but how do they work?

Instead of storing any monetary savings you have in a separate bank account that earns interest, an offset account or a redraw facility is linked to your home loan. For example, if you have a home loan of $350, 000 that you are paying off – but $25, 000 in an offset account, then you would only be paying interest on $325, 000. Your loan repayments remain the same, but the payments come off the principal of the loan and not interest, ultimately saving consumers thousands of dollars over the lifetime of the loan. 

What Are The Benefits Of Having An Offset Account?

Save On Interest – When it comes to virtually any style of loan, nobody wants to pay any more money than they have to right? Offset accounts are one way to significantly reduce the amount of interest that you are paying to a bank.

Pay Your Loan Faster – When making repayments on your home loan, you’re usually paying both the principal of the actual loan, plus interest. Offset amounts can make the loan technically “smaller”, offering borrowers a chance to pay their loan off faster. 

Potential Tax Benefits – Australians pay tax on any interest earned from a savings account or term deposit. If you have a large amount of savings, transferring this to an offset account is one way to reduce the amount of tax you’re paying.

Flexibility – If you’re making voluntary contributions to your home loan without the function of an offset account or redraw facility, then you can’t access those funds or get them back in the event of an emergency – so an offset account provides an extra layer of both security and flexibility. 

Want To Learn More About Offset Accounts?

Offset accounts require a certain level of discipline if you hope to reap the benefits associated with having one – ideally, you shouldn’t be dipping into the savings regularly for example. It’s also worth noting that not all banks offer this option with their home loans, and if they do, some also add potentially higher interest rates or fees that consumers may not be aware of. Thankfully, this is where the services of a mortgage broker come in particularly helpful, as they are seasoned professionals when it comes to navigating the banking industry and what options work best for each client. 

If you’re on the hunt for a highly recommended mortgage broker in South East Queensland, or even some friendly and honest advice on where to buy in Brisbane, then it’s time that you met with George Samios and the team at Madd Loans

Since their inception in 2012, the team at Madd have worked tirelessly in providing over 1700 Queenslanders with finance options to help turn their dreams into reality. With the entire brand being built on referrals, George takes great pride in making the mortgage process both fun, educational and stress free – and he has a swag of awards to prove it. 

An independent operator can be your greatest asset when it comes to navigating loan options and offset accounts, as brokers are there to make you happy – not the banks. To speak to a Brisbane based mortgage professional, please get in touch with the team at Madd Loans today to help turn your financial dreams into reality.


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