Finance

Offset Account

July 22, 2020

Our team at Funding Force often get asked, ‘What is an offset account?’ ‘Will it benefit me having an offset account?’ – so we have quickly summarised it for you.

An offset account is like any other ordinary bank account but this one is linked to your home loan. Offset accounts can potentially help you reduce the amount of interest you pay over the duration of the loan.

Below we have an example that helps explain it that bit more.

What this means is that the interest you are paying is only based on $300,000 not $350,000 as the $50,000 in your offset account is linked to your home loan. The higher the amount you have in your offset account the more it will reduce the interest payable on your home loan. What we do recommend is if you do have an offset account is you get your income paid directly to that account to increase the dollar amount as much as possible to save you on interest being paid to your loan.

Although, there are many advantages of having an offset account there are always some things that you should keep in mind. Knowing your affordability will help determine whether or not you should get an offset account as having one can incur additional fees so be sure to understand the costs involved. Also a home loan with an offset account means that you pay a higher rate as opposed to having a variable home loan without an offset account link. In summary an offset account can have many benefits to you in the long term as it reduces the interest on your loan and potentially the length of your loan.

Q: Is there a minimum balance which must be held in the offset account?

Generally yes, every bank is different. For example ANZ, minimum is $5000 in order for it to trigger the offset.

Q: Do I still have access to my money in the offset account?

Yes, the offset account is still managed by you. We recommend the offset being the main account where you get paid to, and pay your bills from. This will mean it has the highest balance at all times.

Q: Is it available on all loan types?

No, having an offset account is only an option if you have a variable loan. We suggest contacting your mortgage broker to evaluate the best loan option for you.

Q: Can I have an offset account when I have a fixed loan?

No, unfortunately not. If you are wanting to have a fixed loan we suggest having a split loan – meaning a portion of what you borrowed is in a fixed arrange whereas the remaining portion is variable. You will be able to offset the variable portion of your loan.

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