Offset Account
Finance & Loans
A transaction account linked to your mortgage where the balance reduces the interest charged on the loan.
Full Explanation
An offset account works by netting your savings against your loan balance for interest calculation purposes. If you have a $500,000 loan and $50,000 in the offset, you only pay interest on $450,000. For investment loans, the interest saved is still fully tax-deductible because the loan itself has not been reduced. Offset accounts are a key cash flow management tool for Australian property investors.
Example
With $80,000 sitting in your offset account against a $600,000 investment loan at 6%, you save roughly $4,800 in interest per year.
Frequently Asked Questions
Does an offset account reduce my tax deduction?
No. The loan principal remains the same, so the full interest amount on the loan balance is still deductible. The offset simply reduces the interest you are charged, which means you claim a smaller deduction but also pay less interest.
Is an offset account better than a redraw facility?
For investment properties, an offset account is generally preferred. With redraw, paying extra into the loan and then redrawing it can create mixed-purpose loan issues that complicate your tax deductions.