What Is a 100% Loan Offset?

Mortgage brokers should have a clear understanding of the various home loans offered in order to successfully assist their clients with any questions or concerns regarding loan types. A 100% loan offset is a type of transaction bank account that allows a client to use the interest accrued on their account balance to reduce the interest they have to pay on their monthly mortgage repayments. Essentially, a 100% loan offset is an account that is connected to a client’s home loan and allows them to deposit funds that will be used to offset the current amount owed on a home loan. 

Mortgage offset accounts allow clients to save money on interest payments for their home loan and potentially save time in how long it takes to completely pay off a home loan. For example, if a client has an existing home loan balance of $250,000 and a balance of $75,000 in an offset account, the client will only be required to pay interest on the $175,000 difference. 

However, a mortgage broker should be able to inform their clients of any potential disadvantages of opening a mortgage offset account, including the following examples:

• A home loan connected to a mortgage offset account typically has higher interest rates
• Clients will need to have a substantial balance in their mortgage offset account to receive the benefits of saving time and money on their home loan
• Mortgage offset accounts will generally have higher fees than traditional transaction accounts
• Clients who make regular withdrawals from their mortgage offset account may not receive the benefits of saving time and money on their home loan