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“Discipline & consistency in saving habits are essential ingredients to make sure you maximise the offset account benefits”
Mortgage Offset Accounts May Hurt You
Offset mortgage accounts are often promoted as a smart way for homeowners to reduce interest costs: you place savings or a checking account “offset” against your home loan, so you pay interest only on the difference. Yet, as recent coverage in SBS News highlights, these accounts don’t always deliver the benefits they promise.
(Source: SBS)
This article explores why offset accounts can sometimes leave borrowers worse-off, how to evaluate whether they’re right for you, and what alternatives might exist.
What’s an Offset Account?
An offset account ties a transaction or savings account to a variable-rate home loan. If your loan balance is AUD 500,000 and you have AUD 50,000 in your linked account, interest might be calculated on AUD 450,000. That sounds good — but the devil’s in the details.
Why They Can Backfire
Several factors mean that offset accounts may not always produce the expected gains:
- Higher loan interest or fees: Some home loans offering offset features come with higher rates or extra monthly fees, reducing net benefit.
- Opportunity cost: Money kept in the offset is often non-interest earning (or lower returning), so you may lose investment growth relative to other options.
- Small savings balance: If you don’t maintain a significant sum in the offset account, the interest savings may be negligible compared to costs.
- Variable rates: Offset accounts are typically only available with variable-rate loans, which exposes borrowers to interest-rate risk. If interest rises, savings in offset may not offset fast enough.
- Behavioral traps: Some borrowers may treat funds in offset as “available” for spending or draw down, undermining the intended benefit.
How to Evaluate If It Works for You
- Compare net cost: Offset savings minus any extra loan interest and fees.
- Model different scenarios: Try interest-rate rises, drawdowns, reduced savings.
- Check alternative uses: Could that money instead pay down the principal directly, or be invested elsewhere?
- Understand loan terms: Some offset-linked loans may restrict features or tie you to less favourable conditions.
- Be realistic about your cash flow and savings: If you can’t reliably maintain funds in the offset, benefit will be limited.
Final Thoughts
Offset mortgage accounts can be useful — especially for disciplined savers with strong cash flows and large savings balances. But they are not a universal win, and if mis-applied they may actually cost you more in the medium term.
At MyMoneyMedic, we encourage all borrowers to test assumptions, compare net outcomes, and focus on long-term financial resilience, not just headline “savings”. If you’re considering an offset account, or feel uncertain whether your home-loan features are optimal, please reach out for tailored guidance.
Because smart credit and mortgage choices underlie long-term peace of mind — not just short-term illusions of savings.