How does a home loan offset account work?
A 100% offset account is a transaction account linked to an eligible home loan. Money in the offset account reduces the loan balance used to calculate interest.
For example, if your home loan balance is $500,000 and your offset balance is $50,000, interest may be calculated on $450,000 while the $50,000 remains accessible in the transaction account.
How does the calculator estimate interest savings?
The calculator compares the same principal-and-interest loan under two scenarios: one with no offset and one where interest is charged on the loan balance minus the modeled offset balance, never below zero.
Why can an offset help repay a loan sooner?
If your scheduled repayment stays the same while less interest is charged, more of each repayment can reduce principal. Over time this can shorten the loan term as well as reduce total interest.
What should you consider before choosing an offset loan?
Offset home loans can sometimes have different rates or fees from basic loan products. The value of an offset feature depends on how much money you expect to keep in the account and for how long.
It can be useful to compare the expected interest saving with any additional package, account or loan costs before choosing a product.
Offset account FAQs
Is this calculator based on a 100% offset?
Yes. It assumes every dollar in the modeled offset balance reduces the home loan balance on which interest is charged, down to zero.
Does the offset account reduce my actual loan balance?
No. The cash remains in the offset account. It reduces the balance used to calculate interest while it remains there.
Can I still access money in an offset account?
Generally, an offset is a transaction account and funds remain accessible, subject to the particular account's terms and conditions.
Does every home loan have an offset feature?
No. Offset availability, the percentage offset and associated fees vary by lender and product.