Top Strategies to Refinance for an Offset Account

An offset account can reduce the interest you pay, but only if the loan that holds it costs less overall than the one you have now.

For South Yarra homeowners and investors, the decision is rarely about the offset alone. It is about the whole loan: the rate, the fees, the features and how your savings sit alongside the debt. This article sets out how to weigh that up before you refinance your home loan.

How Does an Offset Account Reduce Your Interest?

An offset account is a transaction account linked to your loan, and its balance is subtracted from the loan balance when interest is calculated. You still owe the same debt, but you are charged interest on a smaller amount.

To see the effect, take a loan of $800,000 at an illustrative rate of 6.75% p.a. With $50,000 sitting in the offset, interest is calculated on $750,000. That is about $3,375 a year less interest than on the full balance, because $50,000 multiplied by 6.75% is $3,375. The figure is illustrative only. It assumes the balance stays in the account all year, and your lender's rate and terms will differ.

The trade-off is that offset loans can carry a higher rate or an annual package fee than loans without the feature. If your offset balance is small, those costs can outweigh the interest saved.

When Does Refinancing for an Offset Account Make Sense?

Refinancing for an offset makes sense when the interest you save, plus any rate reduction, is greater than the cost of switching. Your current lender may also add the feature without a full switch.

ASIC's guidance for licensees says a switch should produce overall cost savings that outweigh any lost benefits, or better meet your requirements and objectives. Those costs include any broker fees. A broker must also act in your interests when recommending a refinance, which can include advising you to stay where you are.

Before moving, ask your current lender about changing to a different loan or adding an offset. Moneysmart calls this refinancing internally, and some lenders charge a switching fee for it.

A loan health check compares your current rate, fees and features against what is available, so you can see whether the switch pays for itself.

What Does It Cost to Switch Lenders?

Switching can involve a discharge fee on your old loan, an application fee on the new one and, on a fixed loan, a break fee. Amounts vary by lender, so ask for them in writing.

Moneysmart lists these costs, along with possible lenders mortgage insurance if you have less than 20 per cent equity. Victoria abolished mortgage duty from 1 July 2004, so there is no state stamp duty on a mortgage here.

If your fixed rate is ending, the break fee often falls away. You can use the fixed rate expiry calculator to plan the timing. Remember that a lender may move you to its variable rate when the fixed term ends, so the offset decision and the rate decision are best made together.

Example: A South Yarra Couple Adding an Offset

Consider a South Yarra couple with a variable loan of $800,000 at 6.75% p.a. (illustrative). They hold $60,000 in a standard savings account earning little, and their loan has no offset.

The situation: they want their savings to work against the debt without locking the money away. They ask a broker to compare their loan with the market.

The solution: the broker finds a loan with an offset at the same illustrative rate of 6.75% p.a., with an annual package fee. The couple move their $60,000 into the offset.

The outcome: interest is calculated on $740,000 instead of $800,000. That is $60,000 multiplied by 6.75%, or $4,050 a year in interest avoided. After a package fee of, say, $400 a year and one-off switching costs, they work out their break-even point before proceeding. The savings only hold while the $60,000 stays in the account. If they spend it, the benefit shrinks.

Offset or Redraw: Which Feature Suits You?

An offset keeps savings separate and accessible, while a redraw lets you withdraw extra repayments you have already made. For most people who want daily access to cash, an offset is more flexible.

Redraw is often available on loans with no package fee, but some lenders limit or fee redraw withdrawals. For investors, the difference has a tax angle. The ATO says a redraw used for a private purpose can change how much of your loan interest is deductible, because it affects the split between private and rental borrowing. Money held in an offset is not borrowed money, so withdrawing it does not create new debt. Ask your accountant how this applies to your situation, as tax outcomes depend on your circumstances.

Investors should also keep in mind that adding to a loan for private use can change the deductible portion of interest. Talk to your broker and accountant before changing the structure of an investment loan refinance.

What Will a Lender Check on Your Refinance Application?

A lender must make reasonable inquiries about your requirements and finances and check them before approving the loan. Refinancing without borrowing more is usually assessed more lightly than a loan that increases your debt.

ASIC's guidance notes that a lender can look closely at your repayment history on the existing loan when you refinance to a lower rate without extra borrowing. A history of regular, on-time repayments over a period such as 12 months helps.

APRA requires banks to assess new borrowers at a rate at least 3 percentage points above the loan rate, and it confirmed that buffer would stay in place in May 2026. If you add borrowing during the switch, expect the full assessment. Use the borrowing capacity page to get a sense of where you stand.

Switching From Government-Backed Loans

If your loan sits under the Australian Government 5% Deposit Scheme, moving to a lender outside the scheme ends its benefit. Housing Australia says you may refinance to another Participating Lender and keep it, provided the loan amount and term do not change. Check with Housing Australia before you act.

Our team at AXTON Finance can compare your current loan with the market, show you the break-even figures in writing and tell you plainly if staying put is the stronger option. Call one of our team or book an appointment at a time that works for you, and we will start with a review of your loan.

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