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Banking Explained | How consumers can cut down the time spent repaying a mortgage 

How using an offset account can help consumers shave years off their mortgages

Australian consumers could shave years off their mortgage repayments simply by exploring the benefits of an offset account.

The Customer Owned Banking Association is urging Australians to consider their options when looking to take on a mortgage; including the different products than can help them pay off their home sooner.  

COBA’s Director of Strategy Sally Mackenzie says that one of the most popular products to cut down the time spent repaying a mortgage is an offset account. However, Ms Mackenzie said while people may have heard of offset accounts, there is a lot of confusion about how they work.

“For first home buyers, a home loan is a major financial decision and it can be difficult to understand the new terms associated with taking out a mortgage. For example, what is the difference between an offset account and a redraw facility?

“Offset accounts help lower the amount of interest you pay on your mortgage by deducting the balance of your account against the value of your mortgage. This means when your interest is calculated it will be based on the net balance, i.e. your mortgage balance less your offset account balance.

“Redraw facilities are often confused with offset accounts but they are very different.

“With a redraw facility, you are able to access extra money you have paid off your mortgage. If you’ve paid an extra $100 per month on your mortgage you may be able to access that money later if you have a redraw account,” said Ms Mackenzie.

Offset accounts have become a popular means to reduce the amount of interest being repaid, allowing people to pay down their mortgage quicker.

“If your mortgage balance was $400,000 but you had $50,000 in a full offset account, your interest repayments would be calculated on $350,000 instead of $400,000,” said Ms Mackenzie.

Ms Mackenzie says that while offset accounts are a helpful tool to shave some time off the mortgage repayments, there are some differences for consumers to be aware of.

“There are differences between offset accounts. One of the biggest differences is between full offset and partial offset accounts.

“Full offset accounts mean that 100 per cent of the funds in your account are offset against what you owe on your mortgage. A partial account only considers part of the balance of your account in the deductions,” said Ms Mackenzie.

Ms Mackenzie urged consumers to think about the types of products they used and the lenders they borrowed from.

“There’s a world of banking products out there and many more banking institutions beyond the ‘Big Four’.

“It’s important consumers look beyond the ‘Big Four’ when making big decisions like taking on a mortgage. I’d encourage Australians to look at customer owned banking institutions by visiting ownyourbanking.com.au,” said Ms Mackenzie.


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Ashley Penny
Corporate Affairs Manager
P: +61 2 8035 8444
M: +61 431 932 950
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