What Is A Mortgage Offset Account?

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If you’re a homeowner, first home buyer, or even an investor, consider talking to your bank about activating an “offset account“.

What’s an offset account?

An offset account enables homeowners to save on mortgage interest by having cash set aside in a designated bank account (called the ‘offset’ account).

I find it’s best to use an example…

Let’s say Billy has a $500,000 mortgage. She also has $50,000 in a high-interest savings account earning 2.8% interest.

If Billy transferred $50,000 cash into a linked ‘offset account’ it would be ‘deducted’ or ‘offset’ against her outstanding mortgage.

So, instead of the bank charging mortgage interest on a $500,000 loan, they charge her for $450,000 ($500,000 – $50,000).

Who cares!

Using an offset account correctly may result in savings on mortgage interest and a boost to your after-tax income. I’m talking about $1,000 or more every year.

How does it help?

  1. A mortgage interest rate is usually higher than the interest you earn from a savings account. Meaning, you save more on the mortgage than you make on the savings account.
  2. It can be tax effective. Remember, interest on a bank account is taxed. So even if you’re earning ‘just 3%’ in interest on your savings account you will be taxed at your marginal tax rate. For example, if you have a 30% tax rate, you’re losing nearly 30% of your interest in tax.

How do I get one?

Call you bank or broker. Different banks have different ‘packages’ or ‘specials’ for mortgages. Most of these are a waste of time.

However, while some banks charge you extra fees or interest to have an offset account — some banks offer it for free and offer a low comparison rate. Shop around.

Or speak to a mortgage broker or a financial adviser. As always, read the terms and conditions before you sign on the dotted line.

The future you will thank you for it.

P.S. if you end up saving $1,000 each year in interest and you organise an offset account in under two hours, you’re effectively earning $500 per hour — cha-ching!

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Owen Raszkiewicz

Owen Raszkiewicz

Owen is the Chief Investment Officer of Rask Invest and Founder of Rask. Since founding The Rask Group in 2017 in the hillside suburb of Upwey, Victoria, Owen has overseen the growth of the Rask platform to over 200,000 investor followers. Today, Owen oversees the Rask Analyst team, which helps more than 4,000 Aussies build core portfolios from ETFs and shares, he hosts Australia's biggest investing podcast, The Australian Investors Podcast, appears on Rask's other channels, covering Property, Business and Finance; and leads Rask Education - our education platform which has enrolled over 25,000 Australians into free finance courses. Prior to founding Rask, Owen was an investment analyst at the highly regarded managed funds research business and a writer/analyst for one of the most well-known share market publications. Owen’s formal qualifications include a Master of Applied Finance and Master of Financial Planning from Kaplan Professional, Bachelor of Technology (Information Systems) from Swinburne University of Technology, Advanced Diploma of Financial Services (Financial Planning) and Diploma of Mortgage Broking Management. He's also completed level 1 of the Chartered Financial Analyst (CFA) program.

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