Offset and revolving credit: different ways to manage mortgage cash

Offset and revolving credit loans can both connect everyday cash management with mortgage interest, but they are not the same product. The right discussion starts with how money actually flows through your household.

Understand the account structure

An offset arrangement uses eligible linked account balances when calculating interest on an associated loan. The savings and loan remain separate accounts. A revolving credit facility works more like an overdraft secured against property: money paid in reduces the debt, while drawings increase it within the agreed limit.

Products differ in account eligibility, rates, fees, limits and repayment rules. Read the lender's actual terms. Money used for offsetting may not earn deposit interest.

Use normal balances, not payday balances

A large balance on salary day may fall quickly as bills are paid. Work through a normal month and estimate what is likely to remain available. For a simplified illustration, a $100,000 offset loan with $20,000 of eligible funds might have interest calculated on $80,000, subject to the product's rules. The principal owed has not disappeared.

Protect the repayment habit

Easy access to funds can be useful for uneven income, but repeatedly redrawing can slow debt reduction. Set a target balance and review actual progress. Avoid treating the available limit as extra income or an invitation to spend.

Questions before choosing

• Which accounts qualify, and who can own them?
• What fees and interest rates apply?
• How do required repayments and limits change over time?
• What happens if savings are withdrawn?

Discuss these features through our home loan service. For a simpler approach, consider the principles in our extra repayments guide.