An offset account is a transaction account linked to your home loan. The money sitting in the offset account is used to reduce the loan balance that interest is calculated on.
For example, if you have a $500,000 home loan and $20,000 in an offset account, you may only be charged interest on $480,000. You still owe the full $500,000, but the offset balance reduces the amount used to calculate interest.
This can be a useful way to reduce interest while keeping access to your savings.
Why Offset Accounts Are Popular
Offset accounts have become a common way for borrowers to manage mortgage costs. APRA data showed that, in the June 2025 quarter, borrowers had an average of $11,435 in offset balances for every $100,000 owed on their home loan – up compared with the previous year.
This shows many borrowers are using offset accounts to help manage interest costs while keeping money available for bills, savings, emergencies or everyday cash flow.
How an Offset Account Works
An offset account works like a normal bank account, but it is linked to your home loan. You can usually deposit your salary, savings or spare cash into the account and still access the money when needed.
The benefit is that the offset balance reduces the amount of your loan that attracts interest. The more money you keep in the offset account, the less interest you may pay over time.
An offset account does not usually reduce your minimum repayment automatically. Instead, it reduces the interest charged, which can help more of your repayment go towards reducing the loan balance.
When an Offset Account Can Be Useful
An offset account may be useful if you regularly keep savings or income in your account and want the flexibility to access your money when needed.
It may suit borrowers who:
- Keep emergency savings
- Have regular income coming in
- Want to reduce home loan interest
- Need flexible access to funds
- Are saving for renovations, bills or future expenses
- Want to manage cash flow while paying down a mortgage
Offset accounts can also be helpful for borrowers who are disciplined with savings and want their everyday money working harder against their loan.
When an Offset Account May Not Be Worth It
An offset account is not always the best option. Some loans with offset accounts may have higher interest rates, package fees or account fees. If your offset balance is usually low, the interest savings may not be enough to justify the extra cost.
A basic home loan with a lower interest rate may sometimes be cheaper overall.
Before choosing a loan with an offset account, it is worth comparing:
- The interest rate
- Monthly or annual fees
- Offset account features
- Your expected offset balance
- How often you will use the account
- The total cost over time
Offset Account vs. Redraw Facility
An offset account and a redraw facility can both help reduce interest, but they work differently.
An offset account is a separate account linked to your home loan. Your money stays accessible, and the balance reduces the amount of interest charged.
A redraw facility allows you to access extra repayments you have already made into the loan, subject to the lender’s rules. Redraw may be less flexible, and some lenders may place limits, fees or conditions on access.
The better option depends on how you manage money, how much flexibility you need and the loan features available.
An offset account can be a useful home loan feature, but it needs to be weighed against the loan’s interest rate, fees and your likely savings balance. Peel Finance Brokers can help you compare home loans with offset accounts, basic home loans and other mortgage features to see which option may suit your situation. Contact us to review your home loan options and find a structure that supports your savings, repayments and long-term property goals.
Dip. of Management (Deacon University)
Dip. of Finance/Mortgage Broking Mgt.
Assoc. Cert. of Business (Real Estate)
Assoc. of Mort. Ind. Assoc. of Aust. (AMIAA)
Terry Boag is the founder and CEO of Peel Finance Brokers and has been providing professional and loyal service to the Mandurah and southwest area for 25 years. With a long history of financial experience, Terry is reliable and dedicated to his clients, always ensuring the highest customer service and delivering strong lender relationships.