How does a mortgage offset account work?

A mortgage offset account is a daily transaction banking account or savings account that is linked to a home loan. The balance in the account is ‘offset’ against the balance owing on the home loan, lowering the interest payable.

The Reserve Bank of Australia reports that offset and redraw facilities now hold 17 per cent of the total outstanding mortgage debt in Australia. That is an average of two and half years of repayments.