What Happens If I Have More Money in My Offset Account Than Loan

Last Updated on 7 February 2024 by Ryan Oldnall

Offset accounts are great financial tools that can significantly reduce the interest you pay on your home loan.

These accounts are designed to help homeowners save money by using their savings to offset the balance of their mortgage. But what if you have more money in your offset account than the remaining balance of your loan?

In this article, we’ll explore this scenario, understand how offset accounts work, and explore the implications of having a surplus in your account.

Understanding Offset Accounts

Offset accounts are essentially savings or transaction accounts linked to your home loan. The concept is straightforward: the money in your offset account is used to reduce the outstanding balance of your mortgage.

By reducing the principal amount, you pay less interest on your loan, which can lead to substantial savings over time. The more money you have in your offset account, the less interest you’ll pay.

The Surplus Scenario

Imagine you have been diligently saving money in your offset account, and now the balance of that account exceeds the remaining balance of your home loan. This situation creates an interesting financial dynamic that can work to your advantage.

With your offset account holding more funds than you owe on your loan, your interest payments could be significantly reduced, or in some cases, almost eliminated.

What Happens When You Have More Money in Your Offset Account

Having more money in your offset account than your loan balance can have a big effect on your home loan.

The surplus funds in your account effectively offset your loan balance, reducing it to the point where there’s little to no principal amount left to charge interest on.

In this scenario, you’ll likely find that your interest payments are minimal, and in some cases, effectively zero. This means that the surplus money in your offset account can save you a substantial amount of money in interest payments.

Maximizing the Benefits

To make the most of this situation, it’s essential to employ strategies that maximize the benefits of your offset account. Continue to use your offset account for everyday transactions and savings to maintain the surplus.

You can also consider depositing any additional amounts or lump sum payments into your offset account to further reduce your loan balance. By staying disciplined with your financial management, you can reap the full benefits of having a surplus in your offset account.

Potential Downsides and Limitations

While having a surplus in your offset account is generally advantageous, there are some factors to consider. Loan terms and conditions, as well as the policies of your financial institution, may affect how interest is calculated.

It’s essential to be aware of the terms and conditions specific to your offset account, as they can impact the utilization of surplus funds. For instance, if the balance in your Everyday Offset account exceeds your home loan balance, it’s important to note that some financial institutions may only offset interest up to the loan balance.

This means that any funds in excess of the outstanding home loan balance may not earn additional interest, as per the terms outlined by your financial institution.

Understanding these details ensures you navigate your offset account effectively and make the most of its benefits in accordance with your financial institution’s policies.

Case Studies and Examples

Let’s look at a couple of real-life scenarios to illustrate the impact of having a surplus in your offset account.

Case Study 1

John has a home loan with a remaining balance of $50,000, and his offset account contains $60,000. With the surplus of $10,000, he effectively pays little to no interest on his loan. This translates to significant savings over the life of his loan.

Case Study 2

Sarah has a home loan with a balance of $100,000, and her offset account holds $90,000. While she doesn’t entirely eliminate interest payments, the surplus significantly reduces the interest she pays, resulting in substantial savings.

Case Study 3

Michael has a home loan with a balance of $200,000, and his offset account has $250,000. Michael effectively eliminates interest payments on his loan, which means he will save a substantial amount over the life of his loan.

The drawback in Case Studies 1 and 3 is that, with the offset account exceeding the mortgage, the surplus cash is no longer ‘working.’

This means it is not saving the individual additional interest payments and would be better off invested elsewhere, like in ETFs or high-interest savings accounts as an example.

Practical Steps for Managing Your Offset Account

To manage your offset account effectively, consider the following steps:

1. Regularly monitor your account balance: Keep a close eye on your offset account balance and continue using it for daily transactions.

2. Maintain open communication with your bank: Discuss your specific situation with your bank to ensure you are making the most of your offset account while adhering to your loan agreement.

3. Stick to your financial plan: Continue saving and budgeting responsibly to keep your offset account in surplus.

Comparisons with Other Savings Strategies

When considering the advantages of having extra funds in your offset account, it’s important to compare this strategy with other common methods of saving or investing.

Unlike regular savings accounts, which typically yield lower interest, an offset account distinguishes itself by directly reducing the outstanding balance on your mortgage. This unique feature can lead to more substantial savings over the long term.

When contemplating this alongside the alternative of channeling your money directly into mortgage repayment, it raises essential questions about its impact on your overall financial situation.

Examining these comparisons provides a holistic understanding, aiding you in making informed decisions aligned with your specific financial goals and circumstances.

For example, numerous individuals prefer saving through an offset account, as generating interest on a high-interest savings account contributes to their taxable income.

In many cases, it proves more advantageous to allocate funds towards offsetting their mortgage and payable interest, rather than having the additional income subjected to taxation by the government.


Having more money in your offset account than your home loan balance is a fortunate financial situation that can lead to significant interest savings. By understanding how offset accounts work and using them wisely, you can reduce the overall cost of your mortgage.

It’s essential to stay disciplined in your financial management to make the most of this opportunity.

Remember, while having a surplus in your offset account can bring substantial benefits. It’s essential to comply with the terms and conditions of your loan and communicate effectively with your bank to ensure you are on the right financial path.

With careful planning and financial responsibility, your offset account can be a powerful tool for saving money on your home loan.


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