How does a home loan offset account work?
An offset account is a transaction account which is linked to your eligible variable home loan that offsets the balance in the transaction account against the balance of your home loan. In other words, the amount of money in your offset account is subtracted from the balance of your home loan. The figure that is left after subtracting your offset account balance from your home loan balance is the amount you pay interest on.
For example, if your home loan account has a balance of $400,000 and your offset account balance is $25,000, you will only be paying interest on $375,000.
While your interest payable reduces, your minimum repayment doesn’t change – so more of your repayment is going toward the principal amount, not to interest. As you’re paying down the principal amount of the loan faster, this can reduce the length of your loan and the total amount of interest you need to pay.
- Step 1 — Link your Offset Account to your eligible mortgage
- Step 2 — Deposit money into your Offset Account
- Step 3 — Retain easy everyday access to the funds in your Offset Account
- Step 4 — The balance of your Offset Account is set against the balance of your loan
- Step 5 — The interest you pay is charged as your loan balance minus your Offset Account balance
- Step 6 — Your loan repayments will pay off more of the principal amount potentially shortening your loan
Maximise your offset account by having your salary deposited into your account every pay day. It doesn’t matter if you have thousands of dollars or only a small amount saved - every dollar in your offset account reduces the interest you’ll pay on your home loan.
As well as offsetting your home loan balance, an offset account offers all the features and flexibility you’d expect from a transaction account.
A linked Gateway Visa Eco Debit Card enables you to access your funds when and where you need them. Your money isn’t locked away or difficult to access, ready to use when you need. As it functions like a regular transactional account, you can use your Offset account and Visa Debit Card to shop online, in-store or pay for your subscriptions like Netflix and Spotify.
You can also manage your money with complete visibility and make payments through our Gateway 2go mobile app and Online Banking.
How is an Offset Account different from a Redraw?
Both Offset and Redraw help reduce the amount of interest you pay on your home loan and enable you to pay off your home loan faster. However, if you’re looking for flexibility and the ability to transact and access your money quickly and easily when you need it, an Offset account could be a better option for you.
Redraw, on the other hand, may be the better option when you have a larger sum to pay down your home loan which may only need to access in case of an emergency.
Offset Account |
Redraw |
✓ Reduce the amount of interest paid on your loan ✓ Potentially pay off your loan sooner ✓ Have easy access to the funds in your account |
✓ Reduce the amount of interest paid on your loan ✓ Potentially pay off your loan sooner |
Offset Accounts function as everyday accounts which can be used for deposits, transactions, bills, shopping and other day to day functions.
Redraw, on the other hand, may be the better option when you have a larger sum to pay down your home loan, which you may only need to access in case of an emergency. A Redraw facility isn’t an account like a 100% Offset Account, rather it’s a feature of your home loan. Redraw allows you to withdraw funds from your loan, specifically additional payments which are any payments you’ve made beyond your normal scheduled loan repayments.