Why offset accounts don’t work

The Clever Investor Podcast

Offset accounts are a type of bank account that can be linked to a mortgage, allowing the balance of the account to be offset against the outstanding balance of the loan.

This can help to reduce the interest charged on the loan, as interest is only calculated on the net balance of the loan after the offset is applied. When used correctly an offset account can negate you having to think about repayment frequency.

One of the reasons why mortgage offset accounts don’t work for so many people as well as what is hoped is due to the balance of the offset account being too low. In order for the offset to work effectively, the balance of the offset account needs to be maintained at certain level for as long as possible during the month. This is because the interest saved on the home loan is based on the amount of the offset balance. If the balance is too low, the savings may be negligible, making the offset account less effective.

If you have any questions or concerns, it's best to speak to a mortgage broker who can help to determine whether an offset account is the right option for you.