An offset account is an account linked to your home loan that operates like a transaction or savings account. It offsets the balance in that account against the balance of your home loan, so you’ll only be charged interest on the difference.

Having an offset account may help you to pay off your home loan ahead of its term and save thousands of dollars over the life of the loan, simply by depositing all your regular income and earnings into your offset account.

Many lenders offer a 100% offset account as a feature with standard variable home loans. You can deposit your income into this transaction account and use it for day-to-day expenses. Any money in this account is offset against the amount owing on the home loan, and interest payable on the mortgage is then calculated on the loan balance less funds held in the offset account, reducing the amount of interest paid on your loan.