Despite being a common feature in home loan packages, many mortgage holders are unaware of how offset accounts can reduce their monthly mortgage repayment.

Finance management app Moorr aims to change that. Its new 'Offset Benefit Insight' tool gives Aussies a clear picture of how much money their offset account is saving them by transforming the abstract concept of interest savings into figures users can easily understand.

"Many people struggle to visualise the total savings their offset generates. Discovering how every dollar in an offset account is helping lower mortgage repayments helps Australians take control of their financial future," said Moorr co-founder and property investor advisor Ben Kingsley.

"The Offset Benefit Insight tool stands out through its ability to provide a clear, personalised picture of how much an offset account is saving the user in interest.

"Once people understand how their money makes a difference in their offset account, they will take offset accounts much more seriously."

To use the tool, homeowners need to link their offset account to their loan within the Moorr app, and verify their loan's interest rate to see the potential savings. 

For example, if you have a $400,000 home loan at a 6% p.a. interest rate and an offset account with a $20,000 balance, the actual loan balance considered is $380,000, saving the mortgage holder $87,000 in interest and shortening the loan term by three years.

Moorr ambassador and leading behavioural economist and author Evan Lucas said the power of offset accounts is all about compound interest.

“Just like when you invest in cash, bonds or equities where compounding exponentially increases your returns, offset accounts can exponentially decrease the interest amount you pay. That is their power, because the less interest you pay, the more you pay in principle. The more principle you pay the faster you own the asset,” he said.

Mr Kingsley offers several tips for making the most of an offset account:

  • Deposit lump sums: If you receive or inherit any lump sum, do your research, as the money may be more effective in an offset account than in a high-interest term deposit or other allocation.
  • Deposit your salary: Use your offset account as your main transaction account and have your salary deposited directly into it. Interest on an offset account is calculated daily, so maintaining a higher balance, even with daily transactions, helps reduce your loan balance.
  • Review credit card payments: If using a credit card for everyday expenses, take full advantage of the interest-free period in terms of payment dates. Keep as much money as possible in your offset account for as long as you can to maximise the interest benefit.

Related reading: The benefits of an offset account

Offset accounts on the rise as cost of living bites

More Australians are opting for home loans with an offset account as cost of living pressures squeeze household budgets, according to NAB.

The bank said nearly 70% of all new eligible customers are taking up an offset account with their home loan, up from 50% of new customers just two years ago.

The total amount of money in those offset accounts has seen an increase, up 55% since the pandemic, from $29 billion in 2020 to more than $45 billion in 2024.

In the last 12 months, the median amount NAB customers have deposited into their offset account is around $4,500 each month.

NAB Executive for Home Ownership Andy Kerr said Australians are cutting back on their spending and putting that money back into their offset accounts.

“Australians have been steadily adding to their offset accounts, which has helped them blunt the impact of interest rate rises and a higher cost of living while, at the same time, helping them pay off their mortgage sooner and giving them ready access to cash if and when they need it,” Mr Kerr said.

“We’re seeing Australians more deeply engaged in their financial situation than they have been in a long time and offset accounts have played a key part in that.”

It comes after the latest official data from the prudential regulator APRA showed that Australian borrowers had more than $270 billion in offset accounts over the March quarter, the highest on record.

Image by David Peterson via Pexels

Collections: