‘Mortgage offset account’, ‘offset home loan’, and ‘interest offset account’ – they are all names used for a similar facility provided by financial institutions. In simple terms, it is generally a savings account that offsets against a loan account.

Mortgage Offset Account

An offset facility will generally contain two
different bank accounts:

(1) a transaction account (meaning you have access to the funds) which is linked to,
(2) a loan account.

Simply put, the transaction account (account 1) offsets the interest that is charged to the loan account (account 2). Therefore, the use of the term ‘offset’ is commonly used.

As the transaction account is linked to the loan account it works like a regular savings account. Any notional interest earned on the transaction account will be earned at the same rate as the linked loan account. This will generally be greater than the interest earned on a regular savings account.

It will also provide the ability to utilize the monies saved in the transaction account at your convenience in the future. Interest savings in your offset account will help reduce the loan principal over time, allowing you to pay off your loan sooner and build equity quicker. As an example, Mr. & Mrs. Howard are a couple with a $500,000 mortgage on their investment property and $100,000 in a linked offset account.