See how an offset account reduces your interest.
An offset account is a transaction account linked to your loan. The balance in it is subtracted from your loan balance before interest is calculated, so $20,000 sitting in offset against a $500,000 loan means interest is charged on $480,000. You have not repaid anything and the money stays fully accessible — you have simply reduced the balance interest applies to.
Interest earned in a savings account is taxable income. An offset does not earn interest; it avoids an interest charge, and avoided interest is not taxed. For most borrowers with a home loan, that makes the effective return on money in offset higher than the same money in a savings account at a similar rate. The comparison depends on your marginal tax rate.
Some accounts described as offset are partial, offsetting only a portion of the balance, and some apply to the variable split of a loan only. Confirm whether it is a full 100 per cent offset, whether any account fee applies, and whether the loan’s rate is higher because of it — a package with an offset sometimes carries a fee that outweighs the benefit on a small balance.
A calculator gives you a starting figure. What a lender will actually approve depends on your income, expenses, credit history and the property, and it varies between lenders. We compare more than 40 lenders on our panel and will tell you where you genuinely stand — see our home loan, refinancing and car loan services, or the suburb pages for Werribee, Tarneit and Point Cook.
The interest effect is similar, but offset keeps the money accessible while extra repayments generally require redraw to get it back. Which suits you depends on whether you may need the funds.
Enough that the interest avoided exceeds any package or account fee. On a small balance a fee-charging offset can cost more than it saves.
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