If you have a variable rate home loan, it’s likely you’ll have the option of 100% offset. Let’s look into how this works and what the advantages are – for you and your mortgage.

What is an offset account?

100% offset links an everyday savings account to your variable rate home loan. It uses the money in that account to offset your loan balance. The more money you have in the account, the less interest you pay on your home loan.

Think about a standard home loan. You’re paying interest on the total amount still owing. But with offset, you’re charged interest on your home loan balance minus the amount in your linked everyday account.

An example

Say you’ve taken out a 25-year mortgage for $320,000. Now, suppose you pay an average interest rate of 7.22%.

We’re going to assume you have, on average, $10,000 sitting in your linked account (roughly what you’d hope to have as a ‘buffer’).

Over the life of your loan, you’d save $46,319. Effectively, you end up paying off your loan sooner – your 25-year mortgage ending 20 months early.

How do I set up 100% offset?

You can generally only get offset on variable loans, or on the variable part of your split home loan. This is when part of your loan is fixed and the remainder is variable.

If your home loan is eligible, linking a new or an existing account is easy. And, if you link an existing account your account number and any payments you already have set up won’t change.

If your home loan isn't already linked, you’re unsure or just want to see if you can add a 100% offset account to your loan, talk to your banker, or call us on 13 22 65.

Save interest everyday

Usually your home loan interest is worked out each day, calculated on the balance of your loan (and then charged monthly).

If you’re an offset customer, this means every dollar you have in your linked bank account saves you interest every day that it’s there.

You don’t need to be rich. Even maintaining a balance of a few hundred dollars can save thousands in interest.

Run the numbers through our home loan savings calculator – and now assume an average balance of just $500. On that $320,000 mortgage over 25 years (and at an average interest of 7.22%), you’ll save $2521.

Calculate your potential interest savings

Our loan repayments calculator lets you customise a loan using several variables – loan amount, term, interest rate, and more.

You can also enter how much (on average) you’ll have in your 100% offset account. This will show you the savings you can make—and how much sooner you could pay off your loan.

Keep as much money in your offset as possible

Since every dollar (every day) saves you interest, it makes sense to keep your balance as high as possible – for as long as you can.

Here are two simple ways you can make offset work better for you.

Have your salary or wages paid into your offset

If your pay goes directly into your offset account, this money immediately reduces the interest you pay on your home loan. Even if it’s only in there for a couple of days, it adds up (and you can still take money out as usual).

Download our Salary transfer form (PDF, 208KB) to move over your pay easily.

Use your credit card for everyday purchases

To do this, you really need to be a disciplined spender and know how much your monthly expenses are.

Here’s how it works. Keep enough money in your account for your expenses (e.g. groceries and bills), but use your credit card to pay for them instead. This lets you keep the maximum amount in your account, offsetting interest.

At the end of the month, transfer the money you’ve set aside in your account and pay off your credit card balance in full. This part is key to the strategy, as you don’t want to accumulate credit card interest.

Options if your loan doesn’t offer 100% offset

If you have a fixed rate home loan, your options may be more limited. At the end of your fixed rate period, your loan will shift onto a variable interest rate, or you’ll have the option of splitting it into fixed and variable parts. When this happens, you can consider getting an offset account.

When offset might not be right for you

Usually offset is the most convenient way to save yourself money on your home loan, but there are some exceptions.

Another way to reduce the interest on your variable rate home loan is to make extra repayments. There’s no difference in the money that you will save compared to using your offset, but there are some instances where making extra repayments to reduce your home loan balance can be a better option for you. For instance,

  • You want to increase the equity in your home
  • You want to reduce your loan repayments
  • You can redraw when you’re ahead on payments and you’d rather transfer the savings into your home loan where it is out of sight and out of mind.

Important information

The information contained in this article is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, NAB recommends that you consider whether it is appropriate for your circumstances. NAB recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.

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