How to Use an Offset Account to Reduce Your Mortgage Interest
- janet9362
- Mar 25
- 3 min read
For homeowners and first-time buyers in Bathurst and Lithgow, reducing mortgage interest is a key goal when managing home loans. One of the most effective tools available is an offset account—a simple yet powerful way to lower interest costs and pay off your home loan faster.
As a trusted mortgage broker in Bathurst and mortgage broker in Lithgow, we help clients understand how offset accounts work and how they can save thousands over the life of their loan.
What Is an Offset Account?
An offset account is a transactional bank account linked to your mortgage. The money you keep in this account reduces the balance on which interest is calculated. Unlike a savings account, an offset account doesn’t earn interest—instead, it offsets the interest you pay on your home loan, helping you save more in the long run.
Example: How It Works
You have a $500,000 home loan.
You keep $50,000 in your offset account.
Instead of paying interest on $500,000, you’re charged interest on $450,000.
This means you’re paying less interest while still having access to your savings when needed.
Types of Offset Accounts
Full Offset Account (100% Offset)
Every dollar in your offset account reduces your loan balance for interest calculations.
Most beneficial for long-term savings.
Partial Offset Account
A portion (e.g., 50%) of the balance offsets your mortgage interest.
Fixed vs. Variable Rate Offset Accounts
Most offset accounts are available on variable rate loans.
Some lenders offer fixed-rate offsets, but they may not be 100% offset.
Benefits of Using an Offset Account
Lower Interest Payments – Reduce the amount of interest charged on your home loan.
Faster Loan Repayment – By paying less interest, more of your repayments go towards the principal, helping you pay off your loan sooner.
Easy Access to Funds – Unlike extra repayments, you can withdraw money from your offset account anytime.
Tax Benefits for Investors – If you have an investment loan, keeping extra cash in an offset account instead of paying down the loan directly can provide tax advantages.
How Much Can You Save with an Offset Account?
Let’s say you have:
A $500,000 loan over 30 years with a 6% interest rate
$20,000 in an offset account
Savings over 30 years: $80,000+ in interest
Loan term reduced by: Up to 3 years
The more money you keep in your offset account, the more interest you save and the faster you pay off your mortgage.
Offset Account vs. Extra Repayments – What’s Better?
Both strategies reduce interest and help you pay off your loan faster, but they work differently:
Feature | Offset Account | Extra Repayments |
Reduces Interest Paid | ✔️ | ✔️ |
Accessible Anytime | ✔️ | ❌ (May require redraw) |
Flexibility for Emergencies | ✔️ | ❌ |
Works for Fixed Loans | ❌ (Limited availability) | ✔️ |
Best Strategy? Use a combination—keep savings in an offset account for flexibility while making extra repayments when possible.
Who Should Use an Offset Account?
First home buyers – Reduce interest from day one.
Homeowners looking to pay off their loan faster.
Investors – Maximise tax benefits while reducing interest.
Anyone who wants flexibility – Access your funds while still saving on interest.
How to Maximise Your Offset Account
Deposit your salary into the offset account – Every dollar helps reduce interest.
Use it as your everyday account – Keep expenses low so more money stays in the account.
Avoid withdrawing too often – The more money remains in the account, the greater the savings.
Combine with extra repayments – Reduce interest even further.
Review your mortgage annually – Ensure you’re getting the best rate and loan features.
Is an Offset Account Right for You?
An offset account can be a game-changer in reducing mortgage interest and paying off your loan faster. However, not all home loans come with offset features, and some may have higher fees or interest rates.
As a mortgage broker in Bathurst and mortgage broker in Lithgow, we help clients compare offset home loans to find the best options.
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