100% Offset Account
What is a 100% offset home loan?
A 100% offset account for a home loan is a simple feature that enables you to pay off your loan sooner without even thinking about it. An offset account is a regular cheque account that has ATM, cheque book and internet access that is linked to your home loan when your loan is setup. Instead of earning interest on the money in your offset account, instead you save interest on your home loan!
This is beneficial because generally the interest rate on a savings account is far lower than the interest the bank is charging you on your home loan. With an offset account they will charge you interest on the balance of your home loan less the balance of your offset account.
Example offset calculation
If you had a home loan of $500,000 and you had an offset account with $100,000 in it then the bank would only charge you interest as if you owed them $400,000.
So how does this compare to putting your money in a savings account? If your home loan was at an interest rate of 5% p.a. and the savings accounts with the banks were at 3.5% p.a. then instead of earning $3,500 p.a. on your $100,000, by putting it in an offset account you would save $5,000 in interest.
Not just are you $1,500 ahead in this example, if you consider that the ATO would tax you on the $3,500 interest you earn from the savings account you actually end up even further ahead by choosing an offset account instead.
Which lenders offer a 100% offset account?We've listed some of the loans offered by our lenders that have 100% offset accounts.
- CBA- MAV Standard variable rate / Standard variable rate / 12 month discounted variable rate
- Westpac- Premier advantage rocket investment loan / Premier advantage rocket repay home loan / Rocket repay home loan
- St George- Advantage home loan package standard variable rate / Standard variable rate home loan / Advantage home loan package 1 year discount variable rate
- Suncorp- Money manager standard variable / Standard variable rate loan
- ANZ- Professional benefits standard variable residential land loan / Breakfree standard variable residential land loan / Breakfree standard variable package / Standard variable rate loan
- NAB- Tailored home loan choice package/ Tailored home loan / National flexi plus
- AMP- Professional & basic loans with offset accounts are available.
- Citibank- Mortgage plus package home loan.
- ING- Orange Advantage home loan.
- And many more…
Which one is right for you? Some offset accounts are not fully transactional and some lenders allow multiple offset accounts with one loan. Please enquire online and one of our mortgage brokers will go through your options with you.
How does a 100% offset account work?
A 100% offset account is a linked transaction account that usually has ATM and cheque access. By simply depositing your salary into this offset account, it can be used for all your daily expenses just like a normal cheque account, and the amount of interest that you pay for your loan will be decreased. The more money that you have in your offset account, then the lower your interest expense will be. You should consider the following to make sure you are making the most out of your 100% offset account:
- Have your salary deposited into your offset account so that the amount of interest you pay will be less.
- Ensure that you have sufficient funds in this account to make your loan repayments.
- You can redraw from your home loan account to offset account if need be.
- Use your offset account for transactions with your debit card including ATM, EFTPOS, internet banking, cheque book and BPAY.
- Repayments are made to the home loan account from the 100% offset account.
Should I put my extra funds in the loan or offset account?
Technically there is no difference between putting your additional funds in the home loan account or in the 100% offset account. In practice we find it is better that you just keep your day to day funds in the offset account and put all your extra funds in the home loan account. This means that you will not see the funds on a day to day basis so will not be tempted to spend them!
If you have an offset account on an investment loan then it is usually best to keep your additional funds in the offset account. Read the below "Offset accounts on investment loans" section for more information.
Who can benefit from a 100% offset account?
A 100% offset account is available to anyone regardless of the amount of money they wish to borrow. There are no account keeping or hidden fees associated to this type of home loan so it will not necessarily cost you any extra. As a general rule we find that dual income families with high monthly expenses tend to benefit the most from an offset account as they need the most funds available for their day to day spending.
Can fixed rate loans have 100% offset?
The vast majority of lenders do not allow 100% offset accounts for fixed rate home loans. We have a select few lenders that can consider this type of loan, you can find out more about 100% offset fixed rate loans on our flexible fixed rate page.
Offset accounts on investment loans
If you have an investment property with a tax deducible investment loan on it then an offset account may give you additional benefits. If you make extra repayments into the loan account and then redraw them at a later date, then that portion of the loan may no longer be tax deductible. This is because the tax office looks at the purpose of the funds you redraw from the loan to determine if that portion of the loan is tax deductible.
If you make your extra repayments into an offset account instead of the loan account then this problem is avoided. We regularly help customers buy a small unit when they are young, they make lots of extra repayments into the offset account and then later they buy a house to live in & turn their unit into an investment property. Because they made their extra repayments into the offset account for their unit's loan, they have maximised their negative gearing benefits.
This is general advice only, please talk to a qualified accountant about the tax benefits of an offset account & the implications of redraws from investment loans to obtain accurate advice for your situation.
Can I have an offset account with a basic loan?
The major banks do not offer offset accounts as a feature of their basic home loans. This means that if you are borrowing less than $250,000, then you may need to take out a professional package loan to get an offset account. In most cases professional packages do not have competitive interest rates for loans under $250,000.
However, there are some smaller banks, building societies and non-bank lenders that offer very competitive basic loans with offset accounts. These products are ideal for people who have a small loan and need the benefits of an offset account, or who prefer not to pay ongoing fees.