Rising offset savings ease mortgage pain

Borrowers are putting more money into offset accounts – and that’s cutting the interest they pay on their home loans.

On average, borrowers in the June quarter had $11,435 in offset for every $100,000 they owed on their home loan – up from $10,647 the year before, according to Australia’s banking regulator, APRA.

What’s an offset account?

It’s a bank account linked to your home loan. Whatever money you keep in it is counted against your loan balance, which means you pay less interest. For example, if you owed $500,000 on your home loan and kept $20,000 in your offset, you’d pay interest on only $480,000 (i.e. $500k minus $20k) – not the full $500,000. On a 30-year loan at 5.68%, that could mean saving over $100 per month.*

When offset is useful

• If you keep a good amount of savings or regular cash flow in your account
• If you want the flexibility to access your money anytime, while still reducing interest

When it may not be worth it

• If your balance is usually low – the fee for an offset account might cost more than the interest you save
• If a basic home loan with a lower interest rate would leave you better off

*This example is for illustration only and does not take into account your personal circumstances. Savings will vary depending on your loan, interest rate, fees and charges. This information is general in nature and should not be taken as personal financial advice.