What is an Offset Account?

What is an Offset Account?


A mortgage offset account allows all of your transactional and savings accounts to be linked to your mortgage, and it can have both advantages and disadvantages. In this article, we will explore what a mortgage offset account is, how it works, and the pros and cons of using one.


What is a Mortgage Offset Account?


A mortgage offset account part of your mortgage that is linked to all of your everyday transactional and savings accounts. The balance in the offset account is used to reduce the amount of interest you pay to your lender, and instead you pay to yourself. Essentially, the funds in your bank accounts are used to offset the interest of your mortgage. This can result in significant savings on your mortgage interest payments over time.


How Does a Mortgage Offset Account Work?


When you have a mortgage offset account, the balance in your bank accounts is used to offset the interest payable of your mortgage. For example, if you have a $50,000.00 offset account and have $50,000.00 in your bank accounts, the interest component of your repayment is paid you instead of the bank and reduces the principal of your loan balance. This means that the more money you have in your offset account, the less interest you pay to your lender.


Advantages of a Mortgage Offset Account


  • Paying your loan off quicker: The primary advantage of a mortgage offset account is that it can significantly reduce the amount of time it takes to pay off your mortgage. By offsetting the balance of your mortgage, you can save thousands of dollars in interest payments over the life of your loan.


  • Increased Flexibility: With a mortgage offset account, you have the flexibility to access your funds whenever you need them as they remain you’re your normal everyday accounts. Unlike other mortgage accounts, you are not locked into a fixed term or penalty fees for early repayment.


Disadvantages of a Mortgage Offset Account


  • Higher Interest rate: Mortgage offset accounts often come with higher interest rate as the account of placed on the floating or variable interest rate – this is why it is important to align the limit of your Offset account with the ‘likely’ balance of your combines transactional and savings accounts.


  • Complexity: The mechanics of a mortgage offset account are different to what most mortgage holders are used to. It can take some time to understand the workings of an Offset account, before understanding the true advantages this type of mortgage offers. It’s important to ask your financial adviser how this type of account works before committing to one.




A mortgage offset account can be a great way to reduce the amount of interest you pay to your mortgage provider. However, it’s important to weigh the advantages and disadvantages before making a decision. If you’re unsure whether a mortgage offset account is right for you, it’s best to seek the advice of a financial professional.


If you’re interested in learning more about mortgage offset accounts and how they could benefit you, we encourage you to reach out to us today. Advanced Mortgage Solutions can help you determine if a mortgage offset account is the right choice for you, and guide you through the process of setting one up. Don't wait, start exploring your options and take control of your financial future now!


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