Offset Account
Offset Account is a transaction account linked to a home loan where the balance in the account is offset against the outstanding loan principal when calculating interest. For example, if you owe $500,000 on your mortgage and hold $50,000 in the offset account, you only pay interest on $450,000. Offset accounts are typically available on variable rate home loans, including self-employed home loans.
Why It Matters
An Offset Account is one of the most effective tools for reducing total interest paid over the life of a home loan — without locking money away. Unlike extra repayments, funds in an offset account remain fully accessible, making it particularly valuable for self-employed borrowers and business owners who need to maintain cash flow flexibility while still reducing their interest cost. It pairs well with both alt doc and low doc home loan products.
How It Works
- You open a transaction account linked to your home loan (usually provided by the same lender).
- Your salary, business revenue, or other deposits flow into the offset account.
- Each day, the offset balance is deducted from your loan principal for interest calculation purposes.
- You pay interest only on the net balance (loan minus offset) — whether your rate is fixed or variable.
- The funds in the offset remain yours and can be withdrawn at any time — similar to a drawdown on a line of credit.
Common Use Cases
- Self-employed borrowers parking business income to reduce home loan interest
- Saving for a property deposit while simultaneously reducing interest on an existing loan
- Maintaining an emergency fund that doubles as an interest-reduction tool
- Managing tax obligations — holding GST or BAS funds in offset before quarterly payments
- Investors keeping rental income in offset against an investment property loan
Related Switchboard Resources
For information on how offset accounts affect tax obligations on investment loans, visit ato.gov.au.