If you're diving into the world of home loans, chances are you've come across the term "offset account", and if you’re wondering "how does an offset account work?" or "is it worth getting one?", you’re not alone. It’s one of the most searched home loan features for first-home buyers in Australia. Let’s break it down.
First, what is an offset account?
An offset account is a transaction-style account linked to your home loan, designed to help reduce the interest you pay. It’s linked to your home loan, and the balance you keep in it is offset daily against your loan amount. That means you’re only charged interest on the loan balance minus whatever’s sitting in your offset account.
For example:
If you have a $600,000 mortgage and $20,000 in your offset account, you’ll only pay interest on $580,000.
Why do first-home buyers care?
Because interest adds up, big time. Even a small balance in an offset can reduce the interest you pay over time, depending on your loan size, interest rate, and how consistently you maintain the balance. For many buyers in their 20s and 30s, using their offset account to stash salary or savings (even temporarily) becomes a quiet way to chip away at interest without locking away their money.
Offset account vs extra repayments
One big question is: should you make extra repayments or use an offset?
- Offset accounts provide access to funds while reducing interest, which some borrowers find useful when they want flexibility
- Extra repayments: go straight into your loan. They reduce your principal, but can be harder to access if you change your mind (unless your loan has a redraw facility)
The right approach varies, and it’s worth considering how you plan to use the account and manage your repayments!
The trade-off? Sometimes higher fees or rates
Here’s the honest bit; loans with offset accounts may come with higher rates or fees. Whether the feature is cost-effective depends on how much you keep in the account and your overall loan structure. That’s because the feature can save you serious money if used wisely. If you're not planning to keep much in there, it might not be worth paying extra for the feature.
Pro tip: some lenders offer partial offset accounts (e.g. 100%, 50%, or even 40% offset). Make sure you understand what you're signing up for.
The bottom line?
For some borrowers, an offset account can be a useful feature. Whether it suits you will depend on your financial circumstances and how you intend to use it. Like everything in finance, it’s not one-size-fits-all.
Still confused? Don’t stress, mortgage features like offset, redraw, and split loans can feel like a foreign language at first.
Want to master all the home loan features (without getting overwhelmed)?
Download the free First Home Buyer Guide, it’s packed with simple, practical advice for every stage of your home-buying journey. From comparing loans and features to checklists, calculators, and government scheme breakdowns, it’s your shortcut to confidence. Whether you’re saving your first deposit or about to sign a contract, this guide is designed to provide clear, practical information to help you better understand your options.
Grab your copy now and learn how different loan features work and how they might fit into your overall home-loan strategy.
