What Is a Mortgage Offset Account? (2026)
An offset account is one of the most valuable features of an Australian home loan — but it is also one of the most misunderstood. Here is a clear explanation of what an offset account is, how it saves you money, and what to look for when choosing a loan with offset.
The Basic Concept
A mortgage offset account is a transaction or savings account linked directly to your home loan. The balance in the offset account is “offset” against your outstanding loan balance — reducing the amount of principal on which interest is charged.
Example:
- Loan balance: $600,000
- Offset account balance: $40,000
- Interest is charged on: $560,000 (not $600,000)
You only pay interest on the net balance. You don’t “pay down” your loan — the money in the offset remains accessible — but you dramatically reduce the interest charged.
How an Offset Account Saves You Money
At 6% interest, the saving on $40,000 in offset is:
$$$40,000 \times 6% = $2,400 \text{ per year in interest saved}$$
After tax, this is equivalent to earning approximately 6% interest on your savings — without paying tax on it (unlike a savings account where interest is taxable income).
This makes an offset account particularly effective for high-income earners in the 37% or 45% marginal tax bracket, where a 6% return in offset is equivalent to needing a ~9.5% or ~11% pre-tax return on a savings account to achieve the same after-tax outcome.
→ See How Offset Accounts Save You Money for detailed worked examples.
100% Offset vs Partial Offset
| Type | How it works |
|---|---|
| 100% offset | Every dollar in the account offsets the loan 1:1 |
| Partial offset | Only a portion of the account balance offsets the loan (e.g., 40%, 50%) |
100% offset is significantly more valuable than partial offset. Partial offset products are rare in the Australian market but do exist — read the product disclosure carefully.
→ See 100% Offset vs Partial Offset
Offset Account vs Redraw Facility
These are often confused, but they are very different:
| Feature | Offset Account | Redraw Facility |
|---|---|---|
| Type | Separate bank account | Portion of the loan you can access |
| Accessibility | Instant — ATM, EFTPOS, transfer | Depends on lender — may require application |
| Tax implications (investment loans) | Better — funds never enter the loan | Potentially problematic — mixed purpose risk |
| Government guarantee | Yes (deposits up to $250k per ADI) | N/A — it is a loan feature, not a deposit |
| Visibility | Appears as a bank account | Appears as “available to redraw” in loan balance |
For owner-occupied home loans, the practical difference is mainly accessibility. For investment property loans, the tax treatment distinction matters significantly — speak with a registered tax agent.
→ See Redraw Facility Explained
What Does an Offset Account Cost?
Offset accounts are typically available on package home loans — where you pay an annual fee (usually $350–$400/year) in exchange for the offset feature, a discounted interest rate, and sometimes a linked credit card or transaction account.
Some lenders offer offset on fee-free loans — but these are less common and may come with a slightly higher rate.
Is the annual fee worth it?
On a $600,000 loan with $40,000 in offset at 6%, the annual interest saving is $2,400. An annual fee of $395 reduces the net benefit to ~$2,005. Still well worth it.
For borrowers with smaller loan balances or very little cash to keep in offset, the benefit may not outweigh the annual fee. The break-even point (offset balance needed to justify a $395/year fee at 6%) is approximately $6,600.
Which Lenders Offer Offset Accounts?
All major Australian lenders offer 100% offset accounts on their package loans:
- Commonwealth Bank, ANZ, Westpac, NAB — offset on package loans (annual fee applies)
- ING, Macquarie Bank, Bendigo Bank — offset products available (check fees)
- Non-bank lenders — some offer offset (Firstmac, Liberty, Athena — check product terms)
Online comparison tools can filter by offset account availability. Confirm whether the offset is 100% offset and what account types qualify (savings, transaction, or both).
How Many Offset Accounts Can I Have?
Some lenders allow multiple offset accounts linked to the same loan — useful for budgeting (separate accounts for bills, emergency fund, holiday savings) while all balances reduce your loan interest.
→ See How Many Offset Accounts Can I Have?
Is an Offset Account Good for Investment Property?
Yes — but with an important tax consideration. For investment property loans, you want to maximise your deductible interest. Keeping money in an offset (rather than paying it directly into the loan) preserves your ability to move that money without affecting the deductibility of the loan.
If you pay extra into an investment loan directly and then later redraw that money for a personal purpose, the redrawn portion is no longer deductible. Keeping funds in an offset account avoids this contamination risk.
Speak with a registered tax agent about your specific investment property tax situation.
Frequently Asked Questions
Is the money in my offset account at risk?
Money in an offset account that is held with an Australian ADI (bank, building society, credit union) is protected by the government’s Financial Claims Scheme up to $250,000 per institution. Check whether your offset account is with an ADI.
Does an offset account affect my interest rate?
Your interest rate on the loan itself does not change. The offset simply reduces the balance on which that rate is applied.
Can I use an offset account as my everyday transaction account?
Yes — and this is the optimal strategy. Your salary, everyday spending, and savings sitting in the offset account all reduce your loan interest until you spend the money. The longer your salary sits in offset before bills are paid, the more interest you save.
Related Guides
- How Offset Accounts Save You Money
- 100% Offset vs Partial Offset
- How Many Offset Accounts Can I Have?
- Offset Account vs Extra Repayments
- Redraw Facility Explained
- Mortgage Repayment Hub
This article provides general information about offset accounts in Australia. Tax treatment of investment property offset accounts is complex — speak with a registered tax agent. For advice on loan features tailored to your situation, speak with a licensed mortgage broker. Find one through MoneySmart.