An offset account is a savings or transaction account linked to an eligible home or investment loan.
Offset accounts are usually only available for variable home loan accounts.
A small number of lenders allow an offset account to be linked to a fixed rate but there are usually restrictions around them. If you wish to utilise an offset account but like the security of a fixed interest rate your option may be to split your loan with a fixed portion and the balance as variable.
Money in your account is ‘offset’ against your loan balance. In essence, it is as if you have paid the balance of the offset amount off your home loan. In return, this will reduce the mortgage interest, eg if you had a $300,000 loan and $5,000 in your offset account you will only be charged interest on $295,000. 100% offset accounts are the most common form of accounts.
“When you have an offset you don’t earn interest on your savings. However, you are benefiting as the interest on your savings is actually working to reduce the amount payable on the loan.”
An offset account combined with an Interest Only loan help investors minimise their monthly expenses while making repayments in their own terms