What is a 100% Offset Account, and How Can It Help You Save on Your Mortgage?
When it comes to paying off a home loan, finding ways to reduce interest and pay off your mortgage faster can make a big difference over time. One of the most effective tools available to borrowers is a 100% offset account. But what exactly is it, and how does it work?
Understanding a 100% Offset Account
A 100% offset account is a transaction account that’s directly linked to your home loan. Any funds you keep in this account are used to “offset” the balance of your mortgage. Here’s how it works:
Let’s say you have a $500,000 mortgage and $20,000 in your offset account. With a 100% offset account, the bank will calculate interest on just $480,000 ($500,000 minus $20,000). This means that every dollar in your offset account helps to reduce the amount of interest you’re charged.
Why is it Called a “100% Offset”?
The “100%” in 100% offset account means that the full balance of the offset account directly reduces the principal balance on which interest is calculated. There are partial offset accounts, but these only apply a portion of your balance to reduce the interest, making the 100% offset account far more effective for saving on interest charges.
How Does Interest Work on a Mortgage?
Mortgage interest is calculated daily and charged monthly. This daily calculation means that every dollar you save in your offset account each day reduces the amount of interest you pay on your loan.
Because the offset balance reduces your effective loan balance, the more funds you keep in the offset account, the less interest you’ll pay. If you regularly deposit your salary or other income into your offset account, it can make a noticeable impact over time—without you having to change your monthly mortgage payments.
How a 100% Offset Account Helps You Save Money
Let’s look at some of the practical benefits:
Lower Interest Costs: Since lenders calculate interest daily, the balance in your offset account works to lower the principal each day, meaning you’re consistently saving on interest. Over the life of a loan, these daily savings can add up significantly.
Flexible Access to Funds: Unlike extra repayments made directly into your mortgage, funds in your offset account remain accessible. This can provide flexibility and peace of mind for unexpected expenses or other investments while still reducing your interest.
Maximizes Every Dollar: If you’re using your offset account as your primary bank account, every deposit—whether it’s your salary, rental income, or additional savings—instantly works to reduce your loan balance and save you money on interest.
Who Benefits Most from a 100% Offset Account?
While a 100% offset account can benefit many borrowers, it’s especially valuable for:
High-Income Earners or Individuals with Significant Savings: If you can maintain a large balance in your offset account, you’ll see more substantial interest savings.
Entertainment Professionals and Other Irregular Income Earners: For people who don’t have consistent income, a 100% offset account offers a way to save on interest with every dollar you have on hand, even if it fluctuates throughout the year.
Investors and Savvy Savers: Those who plan their finances to keep their savings in an offset account rather than a traditional savings account can achieve similar results with the added benefit of reducing mortgage interest.
A Smart Way to Save Without Compromising Access
A 100% offset account essentially allows you to put your money to work every day. Because the funds remain accessible, it’s a great tool for borrowers who want to reduce interest without sacrificing liquidity. By keeping a steady balance in your offset account, you’re reducing your loan balance daily and helping yourself save on interest in a way that aligns with your lifestyle and financial goals.
Is a 100% Offset Account Right for You?
Not all mortgage products include a 100% offset account, and some come with added fees or slightly higher interest rates. It’s essential to consider whether the savings from the offset account outweigh any extra costs. Speaking with a mortgage professional can help you determine if an offset account is the right choice for you.
At Rosh Partners, we specialize in tailoring mortgage solutions that maximize your savings and help you achieve your financial goals. If you’d like to explore how a 100% offset account can benefit you, get in touch with us today. We’ll guide you through the options and help you decide the best setup for your unique situation.
