Offset Accounts and First Homes: A Guide for Nurses

An offset account can reduce the interest on your first home loan without locking your cash away. For a nurse or midwife with irregular pay, that mix of savings and access can be useful. It also has costs, and it does not suit every buyer.

What Is an Offset Account on a First Home Loan?

An offset account is a transaction account linked to your home loan. The balance in it is subtracted from your loan balance when the lender works out your daily interest. You still own the money and can spend it whenever you need to.

If you owe $500,000 and keep $20,000 in the offset, you pay interest on $480,000. Your minimum repayment does not change, but more of it goes towards the loan balance. Many lenders offer offsets on variable interest rate loans. Fixed loans may have a limited offset or none, so check the details for each home loan option.

Offset Account vs Redraw: Which Suits Shift Workers?

An offset keeps your savings in a separate account, while redraw lets you withdraw extra repayments you have already made into the loan. Both lower interest, but they differ in access and flexibility.

With redraw, the money becomes part of your loan. Some lenders limit how much you can redraw, charge fees, or take a few days to release funds. An offset behaves like an everyday account with a card attached. That matters if your pay moves around with penalty rates, overtime and agency shifts, because you can keep a buffer in the offset and still reach it quickly.

Redraw can still work well. Some loans without an offset account have lower fees or a lower interest rate. If you plan to spend your savings rarely, redraw may cost you less overall.

How an Offset Account Works for a Midwife: A Worked Example

An offset account saves interest in proportion to the balance you keep in it. Here is an illustrative example using a rate of 6.75% p.a.

Consider a midwife who settles on a $500,000 loan. Her interest at 6.75% p.a. is about $33,750 a year. She keeps a $20,000 buffer in the offset for rego, rates and quiet months between shifts. That buffer means she pays interest on $480,000, which is about $32,400 a year.

The difference is about $1,350 a year, or roughly $26 a week. Her minimum repayment is unchanged, her cash is still available, and every dollar of the buffer works against the loan. If she later adds her tax refund or rostered overtime, the saving grows.

The saving depends on the balance staying in the account. If she drops the buffer to $5,000 after buying furniture, the saving falls to about $337 a year at the same illustrative rate. It also needs to outweigh any extra fee or higher rate on the loan, which the next section covers.

The Costs and Trade-Offs of an Offset Account

An offset account can cost you more than it saves if the loan carries a higher rate or an annual package fee. The saving only exists while there is money in the account.

Some lenders charge a yearly fee for loans that include an offset, or set the rate higher than their basic variable product. If those costs exceed the interest you save, a basic loan with extra repayments may suit you better. A basic loan may suit a buyer who expects to hold little or no balance in an offset, and Moneysmart suggests an offset may not be worth paying for if the balance will always be low.

An offset also relies on discipline. Money that is easy to reach is easy to spend, so some buyers prefer redraw with a few hurdles. A broker can compare the full cost of each option for you, including fees and the rate, rather than just the headline interest rate.

Does the 5% Deposit Scheme Work With an Offset Account?

The 5% Deposit Scheme lets eligible first home buyers purchase with a 5% deposit, and the government backs the part of the loan between the deposit and 20% of the property value, so Lenders Mortgage Insurance (LMI) is not payable. The loan itself comes from a participating lender, so the features on offer depend on that lender.

Applications are made only through a participating lender. The loan must be an owner-occupier principal and interest loan, and the products and features on offer, including any offset, depend on that lender. Ask whether an offset account is available with your loan, and what it costs. You can read more about how the 5% Deposit Scheme works for nurses and the wider options in our first home buyer guide for nurses.

A smaller deposit means a larger loan and usually less spare cash. The saving from an offset depends on the balance you keep in it and your rate, not on the size of the loan. Low-deposit buyers should check they can keep a meaningful balance in the offset before paying for one.

Offset Account Features to Check Before Pre-Approval

Check the offset's fees, the rate, how many offsets you can link, and whether a partner can share it, before you commit to a loan. These details decide whether the account earns its keep.

A short list of questions to put to a lender or broker:

• Is there an annual package fee, and does the loan rate rise when the offset is added?
• Does the offset reduce interest on the full balance, or only part of it?
• Can you open more than one offset to separate bills from savings?
• Is the offset still available if you fix part of the loan?

Raise these early. When you apply for loan pre-approval, you can ask for the structure to be built around the offset from the start. It is also worth knowing your borrowing capacity first, because the amount you can borrow shapes your loan size and repayments. If you work in midwifery, our page on home loans for midwives explains how lenders treat shift and penalty income.

Call one of our team or book an appointment at a time that works for you. We will compare offset and redraw options for your roster, income and deposit, and show you the numbers before you apply.

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