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Many loans, and in particular the Professional Packages, come with a mortgage offset account. But how are they used and why?

How does it work?

A mortgage offset account is a normal bank account that you have in addition to your loan. Any amount of funds you have in that account is taken off your loan balance before the lender calculates the interest payable on your loan on any given day.

Features

  • The ability to transfer in any amount of money including direct salary crediting at any time without cost.
  • The ability to transfer money out at no cost (in some cases minimums may apply eg $500)
  • Many offer cheque book access
  • They are generally free of transaction fees for internal transactions eg transferring in and out.

What are the benefits?

  • Instead of having your money in an account that earns interest at a low rate and is taxable your money ‘saves’ you interest equivalent to your home loan rate and no tax is payable.
  • Most redraw facilities on loans have a transaction fee for each redraw. With a Mortgage offset account the loan is not actually paid off and there is no fee for drawing the money back out. There is usually also a minimum amount that you can pay off or redraw on your loan.

When is it used?

A mortgage offset account works well in the following circumstances:

  • When used as part of a professional pack and you have your salary paid to it and your credit card balance is paid off to it monthly. It effectively achieves the same result as an All in One account but you can often get larger discounts off your home loan rate.
  • You want ready access to a cash reserve, without the delay or hassle of having to organise a redraw, but want to offset the interest on your loan
  • You have periods where you have cash amounts that you will use again eg between transactions when you are buying and selling shares


Tip for Use

Often the minimum transfer out is $500. If you really only need a lower amount this can still easily be done. As most mortgage offset accounts have no internal transaction fees then you simply transfer $500 out to an account within the same bank and then transfer back whatever amount you do not need at no cost.

Eg. If you need $200, you transfer out $500 then transfer back $300 straight away.