Is Your Mortgage Offset Account Actually Saving You Money? 🏡💸

Mortgage offset accounts are often promoted as a smart way to reduce interest and pay off your home loan faster. And while they can be effective, many Australians are unknowingly paying more than they save.

If you're wondering whether your offset account is really worth it—or if you'd be better off with a lower-rate mortgage or redraw facility—this article breaks it all down for you.

💬 What Is a Mortgage Offset Account?

A mortgage offset account is a transaction or savings account linked to your home loan. The balance in this account is "offset" daily against your home loan principal, reducing the amount of interest you pay.

For example, if your home loan is $500,000 and you have $25,000 in your offset account, you’ll only be charged interest on $475,000.

The Problem: Higher Rates and Hidden Costs

In Australia, many lenders offer offset accounts as part of home loan package deals—but these can come with:

• Higher interest rates (compared to basic loans)

• Annual package fees (often $300–$400 per year)

• Minimum balance requirements to make them worthwhile

Let’s say your home loan with an offset account has a rate of 6.25%, while a comparable loan without offset sits at 5.95%. Unless you’re consistently holding a large balance in your offset—say $20,000 or more—you may be paying more in interest than you’re saving.

🧮 Offset Accounts vs Interest Savings: Do the Math

Here are three questions every homeowner should ask when reviewing their offset account strategy:

1. What’s Your Average Offset Balance?

Are you consistently keeping funds in your offset account—or does it fluctuate due to spending habits? If your average balance is low, the interest savings might be negligible.

2. How Much More Are You Paying for the Offset Feature?

Compare your current interest rate with loans that don’t include an offset. Also, check if you're paying annual package fees or hidden charges.

3. Are You Actually Saving More Than You’re Spending?

Run the numbers. A 0.25% higher interest rate could cost you thousands over the life of your mortgage.

🔄 Offset vs. Redraw Facility: What’s the Difference?

Many borrowers confuse offset accounts with redraw facilities. Here’s the difference:

Offset Account:

• Immediate access to funds, like a normal bank account

• Linked to a separate transaction/savings account

• Often comes with higher interest & annual fees

• Great for everyday use

Redraw Facility:

• Access to funds is usually slower and may have limits

• Linked to extra repayments on the loan

• Typically has fewer fees and lower rates

• Better for long-term saving and discipline

If you're not using your offset effectively—and don’t need daily access to funds—a redraw facility could be a more cost-effective solution.

🏁 The Bottom Line: Is Your Offset Account Worth It?

Offset accounts can work well—but only when used strategically. If your money isn’t sitting in the account long enough or in large enough amounts to make a difference, the extra fees and higher rates may cancel out any benefits.

The key is not to assume it’s the best option—run the numbers and compare home loan products regularly.