UNDERSTAND YOUR LOAN FEATURES
Everyday money. A different role.
An offset can connect the money you keep accessible with the interest charged on your mortgage. Whether it is worthwhile depends on the details.
How an offset works.
An offset is an account linked to an eligible home loan. Its balance reduces the loan amount used to calculate interest; it does not itself pay down the loan principal.
For example, a $500,000 loan with $20,000 in a 100% offset has interest calculated on $480,000 while those balances remain. This is a simplified illustration, not a quote.
Some offsets are partial. Check the percentage, eligible loan type, account fees and any higher loan rate. A small average offset balance may not justify the extra cost. Moneysmart explains the features to compare.
Check the connection, then the cost.
Confirm that the account is actually linked to the intended loan, particularly after a refinance or product change. Review your statements and ask your lender how the benefit is calculated.
- Is the account a full or partial offset?
- What balance do you expect to keep there on average?
- What additional fees or rate apply?
- How will you check that the link remains active?
A few useful questions.
Is offset the same as redraw?+
No. Offset money sits in a separate account. Redraw accesses eligible extra payments already made into the loan, subject to the lender’s access rules and conditions.
Does offset automatically lower my required repayment?+
An offset generally reduces interest rather than the required repayment. With the same repayment, more may go towards principal. Check your lender’s treatment for your loan.
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