What is an Offset Account Home Loan in Canberra?

Offset accounts are becoming increasingly popular among homeowners in Canberra, and for good reason. But what exactly are they? And how can they benefit you?

An offset account is a transaction account linked to your home loan. The money in this account offsets your home loan balance, reducing the amount of interest you're charged.

As experienced mortgage brokers with over 20 years in the Canberra market, we're here to break it all down for you. This guide will walk you through what an offset account is, how it works, and how it can save you money on your mortgage. 

What is an Offset Account?

An offset account is a transaction account that's linked directly to your home loan. The balance in this account is used to offset the amount you owe on your home loan, thereby reducing the interest you pay. Essentially, the money in your offset account is subtracted from your loan balance when your lender calculates the interest.

How Does an Offset Account Work?

The mechanics of an offset account are straightforward. Let’s say you have a home loan balance of $500,000 and an offset account with $50,000 in it. Instead of paying interest on the full $500,000, you’d only pay interest on $450,000 ($500,000 - $50,000). The more money you have in your offset account, the less interest you pay.

Most offset accounts are linked to a variable home loan. This means the amount of interest you save can change depending on your loan’s interest rate. However, the savings can be substantial, especially over the long term.

Offset Accounts vs. Redraw Facilities: Key Differences

While both offset accounts and redraw facilities can help you reduce the interest on your home loan, they operate differently. With a redraw facility, any extra repayments you make on your loan can be withdrawn if needed. However, this money reduces your loan principal directly, not just the balance on which interest is calculated.

Offset accounts, on the other hand, allow you to use your money for everyday transactions while still reducing the interest on your loan. This flexibility makes offset accounts a preferred choice for many Canberra homeowners.

Potential Benefits of Using an Offset Account

There are numerous potential benefits to using an offset account, especially in Canberra’s current property market:

1. Interest Savings: By reducing your loan balance, you’ll pay less interest over the life of your loan. This can lead to significant savings, especially if you maintain a high offset account balance.
2. Loan Term Reduction: The more interest you save, the faster you can pay off your loan. Even a small increase in your offset balance can shave years off your loan term.
3. Flexible Access: Unlike other loan repayment strategies, the money in your offset account is always accessible. You can use it for everyday transactions, just like a regular bank account.
4. No Tax on Interest: Since you're not earning interest on the money in your offset account, there's no tax to pay on it. This can be particularly advantageous if you’re in a higher tax bracket.
5. Improved Cash Flow Management: An offset account can serve as a hub for your financial transactions. You can deposit your salary, pay bills, and manage expenses—all while reducing your home loan interest.

An Overview of Canberra’s Property Market in 2025

As of 2025, Canberra's property market continues to be one of the most stable in Australia. According to the latest data from CoreLogic, the median house price in Canberra has risen by 4.5% over the past year, reaching approximately $960,000. This consistent growth, coupled with historically low interest rates, makes now a particularly good time to consider your home loan options.

Case Study: How Offset Accounts Can Save You Money

Let’s take a look at a real-life example. Sarah and Mark, a couple from Canberra, purchased their home in 2020 with a loan of $600,000. They decided to use an offset account to manage their savings. Over the next four years, they consistently kept $40,000 in their offset account.

Here’s what they achieved:

Loan Term: Their original loan term was 30 years. Thanks to the offset account, they reduced their loan term by 4 years.
Interest Savings: By offsetting their loan balance, they saved over $50,000 in interest over the life of the loan.

Flexibility: The money in their offset account was always accessible. They used it for everyday transactions without ever impacting their savings goal.

This case study highlights the practical benefits of using an offset account, showing how even a modest offset balance can lead to substantial savings.

Factors to Consider Before Choosing an Offset Account

Before jumping into an offset account, consider the following:

Account Fees 

Some lenders charge an annual package fee for an offset account. It's important to weigh this cost against the potential savings.

Minimum Balance Requirements 

Certain accounts might require you to maintain a minimum balance to benefit from the offset feature fully.

Interest Rate 

Offset accounts are typically linked to variable rate loans. This means your interest rate could fluctuate over time.

Accessibility 

If you need frequent access to your funds, an offset account might be more suitable than other loan features like a redraw facility.

FAQs 

How much can I save with an offset account?

Your actual savings with an offset account depend on your loan amounts, loan interest rates, and how much spare money you keep in the account. Using a repayment calculator or consulting a loan expert can help estimate your potential cost savings.

Is there a difference between a partial and full offset account?

Yes, a full offset account reduces your loan balance by the total amount in the account, while a partial offset account only offsets a portion of your current loan balance. This difference impacts the overall mortgage interest rate you'll pay.

Are there any tax consequences with an offset account?

No, since an offset account doesn’t earn interest, there are no tax consequences related to interest income. This can be a financial benefit, especially for borrowers in higher tax brackets.

Can I have multiple offset accounts linked to one home loan?

Yes, some lenders offer the option of having multiple offset accounts, which can be linked to a single variable rate loan account. This setup can help manage your regular expenses and direct payments more effectively.

Do offset accounts work with fixed-rate loans?

Offset accounts are typically associated with a variable loan, but some lenders may offer partial offset facilities for fixed-rate loans. However, the savings may not be as significant compared to those with a variable home loan account.

What’s the difference between an offset account and a redraw facility?

An offset account reduces the interest on your loan by offsetting your loan balance with the amount in the account. A redraw facility, on the other hand, allows you to withdraw extra mortgage repayments you've made, which directly reduces the loan principal.

How do I set up an offset account?

Setting up an offset account is usually part of the loan application journey. Discuss the loan details and relevant terms with your lender or dedicated home loan specialists to understand your eligibility criteria and options.

Can I still make lump sum deposits into an offset account?

Yes, you can make lump sum deposits into an offset account, which can further reduce your loan interest rates. This feature is particularly useful for those with spare savings or expecting a financial windfall.

Are there any fees associated with offset accounts?

Offset accounts may come with an annual package fee, which applies per month and can vary based on the loan type. It's important to weigh these fees against the potential loan term savings and additional benefits.

What are the lending criteria for getting an offset account?

Lending criteria for offset accounts are similar to those for a basic loan or other borrower home loan options. Factors such as credit criteria, loan amounts, and the applicant’s personal circumstances are considered during the pre-qualification process.

Can permanent residents apply for an offset account?

Yes, permanent residents are generally eligible for loan offset accounts, provided they meet the credit and eligibility criteria set by the lender. Speaking with a financial adviser or loan specialists can provide clarity on your specific situation.

Does a variable interest rate affect my offset account?

Yes, since offset accounts are usually linked to variable rate loans, changes in the variable interest rate will impact your mortgage interest rate and the overall savings. It's advisable to monitor the rate period and make regular deposits to maximise your offset balance.

How does a prepayment threshold affect my offset account?

The prepayment threshold, or the maximum amount you can repay without penalties, doesn’t directly affect an offset account. However, any extra money in your offset account beyond your minimum repayments contributes to compound interest savings on your loan.

What product features should I look for in an offset account?

Key product features to consider include ease of access, eligible transactions, and whether a fee waiver is available. Comparing these with the standard interest rates of other basic home loan accounts can help you choose the best option.

Conclusion: Is an Offset Account Right for You?

Offset accounts can be a powerful tool for managing your home loan, especially if you're looking to reduce your interest payments and maintain financial flexibility. However, they may not be the right choice for everyone. It’s crucial to consider your financial circumstances, compare different loan options, and seek professional advice.

If you’re in Canberra and want to explore how an offset account could benefit you, or if you have any other home loan questions, don’t hesitate to reach out to us. Home Loan Brokers Canberra has over 20 years of experience helping clients navigate the complexities of home loans, or call us at 02 6173 6397   because   we’re here to help you make the best choice for your financial future.