How an offset account works
An offset is an ordinary transaction or savings account linked to your mortgage. Each day the lender subtracts the account balance from the loan balance before calculating interest. Your required repayment does not fall; instead, less of it goes to interest and more to principal, so the loan shrinks faster. Your money stays fully accessible.
What different balances save
| Offset balance | Interest saved (loan life) | Time saved | Saving in year 1 | After-tax savings interest at 4.5% (30% tax) |
|---|---|---|---|---|
| $10,000 | $56,632 | 1 year 2 months | $649 | $315 |
| $25,000 | $131,050 | 2 years 10 months | $1,623 | $788 |
| $50,000 | $233,655 | 5 years 1 month | $3,245 | $1,575 |
| $100,000 | $385,150 | 8 years 5 months | $6,490 | $3,150 |
| $150,000 | $491,539 | 10 years 9 months | $9,735 | $4,725 |
$600,000, 30 years, 6.49%. The last column compares the same money in a savings account at an illustrative 4.5% for someone on a 30% marginal rate (plus Medicare).
Offset vs high-interest savings
Offset “earns” your loan rate — 6.49% — and it is not taxable income, because you are saving interest, not earning it. A savings account paying 4.5% leaves a taxpayer on the 30% bracket (plus 2% Medicare) with about 3.06%. To match an offset, a savings account would need to pay around 9.54% before tax. That is why households who keep an emergency fund often hold it in an offset.
Offset vs redraw
Redraw lets you pull back extra repayments you have made. It saves the same interest, but the money legally becomes part of the loan: lenders can limit or freeze redraw, it may carry fees, and — importantly for future investors — funds redrawn for investment can muddy the tax deductibility of interest if you later rent the home out. An offset keeps savings separate.
Is the offset worth the fee?
Offset accounts usually come with a “package” loan that costs around $300–$400 a year or carries a slightly higher rate. A $395 annual fee is worth it if your average offset balance saves more than that — at 6.49% the break-even is an average balance of about $6,086. A loan priced 0.10 points higher on $600,000 costs about $600 a year, which needs a balance of roughly $9,245 to recover.
Tips
FAQ
How does a mortgage offset account work?
The balance of the linked account is subtracted from your loan balance before interest is calculated each day. You pay less interest, your repayment stays the same, and the extra goes to principal.
How much does $50,000 in an offset save?
On a $600,000, 30-year loan at 6.49%, a constant $50,000 offset balance saves about $233,655 of interest and pays the loan off 5 years 1 month sooner.
Is an offset account better than a savings account?
For most taxpayers, yes. Offset savings equal your loan rate (6.49%) and are tax-free, whereas savings interest is taxed at your marginal rate.
What is the difference between offset and redraw?
Both save interest. Offset money stays in a separate account you own; redraw money is extra repayments inside the loan that the lender can restrict, and using it can complicate tax if the property later becomes an investment.
Do fixed-rate loans have offset accounts?
Some do, often partial (e.g. 40%) or capped. Most full 100% offsets are on variable loans.
Related home loan guides
Assumptions & sources
- RBA cash rate target 4.85%: raised 0.25 points on 3 November 2026, effective 4 November (the Monetary Policy Board voted 6–3). It was the fifth rise of 2026, after February, March, May and September. The Board’s next decision is at 2:30pm AEDT on Tuesday 8 December 2026.
- Average owner-occupier variable rate (P&I) 6.49%: Canstar estimate once the September rise was passed on (29 September 2026), in line with RBA Table F6 — new owner-occupier variable loans averaged 6.23% in August 2026, before the rise. Canstar’s average advertised rate across its whole database was 6.75% (13 October 2026) and the lowest variable rate was 5.89% (20 October 2026). As of 3 November no big-four bank had announced how it would pass on the November rise; passed on in full, it lifts the average to about 6.74%.
- Fixed rates: big-four 1–2 year fixed rates ranged from 6.49% (ANZ) to 6.81% (NAB 2-year) in October 2026; the lowest fixed rate on Canstar was 5.79% (1-year).
- APRA serviceability buffer: 3 percentage points above the loan rate (kept unchanged in APRA’s May 2026 review). From 1 February 2026 no more than 20% of a bank’s new owner-occupier lending (and separately investor lending) may be at a debt-to-income ratio of 6 or more.
- LMI: indicative full-doc premiums from one lender’s table published by Home Loan Experts (updated 18 May 2026); insurers price individually and state stamp duty on the premium may apply (none in NSW).
- 5% Deposit Scheme (First Home Guarantee): Housing Australia rules from 1 October 2025 — unlimited places, no income caps; Darwin cap raised to $750,000 from 1 July 2026.
- Repayments use standard amortisation (monthly, fortnightly or weekly compounding to match the payment) with the rate held constant for the whole term; real loans calculate interest daily and rates change.