Two women high fiving while doing a push up

Home loan guide / Home loans explained

Pairing fixed rates and offset accounts

2 min read

Caitlyn Smith

It's uncommon for lenders to offer an offset account with a fixed rate, but Tic:Toc does. You can have certainty of repayments with the flexibility to save on interest payments. Win-win!

So, you’ve found a great home loan rate and want to lock it in fast. Wonderful. But you also want the flexibility to pay off your loan ASAP. So what can you do? On the rare occasion, some clever home loan providers (like Tic:Toc) offer the option to add an offset account to a fixed rate home loan. Which may be just the answer you’re looking for.

Fixed rates

There are a lot of different kinds of home loan rates, and fixed rates are great because they give you security in locking in your home loan rate. This means you won’t need to worry about potential rate hikes, which can arise at any time with a variable rate home loan. You will also get certainty of fixed repayments, which means you know exactly how much you will need to allocate to your home loan over your fixed period, and can budget accordingly.

The downside to fixed rates is that they can limit your additional repayment amount. This means you won’t be able to pay off your loan faster by making extra repayments. For example, if your situation changes (like getting a pay rise), you won’t get the benefit of paying down more of your principal loan amount to reduce the amount of interest you pay over the life of your loan. Boo.

Offset accounts and how they work

An offset account is a transaction or savings account that is linked to your home loan. Just like other savings accounts, you can choose to have your salary deposited into it and set up direct debits. You can also have a debit card connected to it for everyday purchases. However, where it differs from other transaction/savings accounts is how it is connected to your home loan. At the end of each day, the balance of your offset account is taken away from the amount you owe on your home loan. The interest for your home loan is then calculated on the difference between them (i.e. on your loan amount, minus the savings you have in your offset account). This means if you have money stashed in your offset account, you will pay less interest over the life of the loan and can pay back your home loan faster. This is a handy way to reduce the amount that your home loan interest is calculated on without having to make extra repayments and needing to redraw them later. Offset accounts are different to redraw facilities because they are a separate account from your home loan, while a redraw facility allows you to withdraw any additional repayments you have made into you home loan.

An offset account works better with a fixed rate because often additional repayments are limited on fixed rate home loans, meaning you’d only be allowed to make a limited amount of repayments which then limits how much would be available for redraw on your home loan (you can learn more about redraw facilities here). But if you have an offset account attached to your home loan, there is no limit to the amount you can keep in that account, which means you can keep adding to it whenever you want and get the benefit of paying less interest on your home loan. You can find out more about how offset accounts work here.

The perfect pair

The beauty of adding an offset account to your fixed rate home loan is that you get the best of both worlds. You can have the certainty and stability of a fixed rate, while also gaining the flexibility to pay off your loan faster. Fixed rates often have a limited amount of additional repayments that can be made, so while you can pay extra into your loan and reduce the interest you pay that way, you are limited with how much extra you can pay into your home loan. An offset account allows you to continually add as much money as you want into the account, while also reducing the amount that your interest is calculated on. Paying less interest on your loan with an offset account makes it easier to reduce the amount still owing as you make your repayments. Everyone wants to pay off their home loan as soon as they can, but having the security that your interest rate won’t change is a great feature too. With a fixed rate and an offset account, you can have your cake and eat it too. How delicious.

Find out more about Tic:Toc’s fixed rate home loans, which all have the option to add an offset account.

Want more?

Fixed rate home loan guides

  • Hand wash and plants on a window ledge

    Home loans explained

    Fixed vs. variable loans

    Caitlyn Smith

  • Person skateboarding

    Home loans explained

    Is a fixed interest rate home loan best for you?

    Caitlyn Smith

  • People walking up and down stairs

    Home loans explained

    How banks and lenders set their interest rates

    Bailey Underwood

More in Home loans explained

Slide 1 of 9
  • Man holding ladder while woman on ladder put painting tape on wall

    Home loans explained

    What does home equity mean and how does it work?

    Caitlyn Smith

  • Woman paying for purchase with phone

    Home loans explained

    Can Afterpay prevent you from getting a home loan?

    Caitlyn Smith

  • Person stamping the word no

    Home loans explained

    Why home loans are rejected

    Caitlyn Smith

  • People walking up and down stairs

    Home loans explained

    How banks and lenders set their interest rates

    Bailey Underwood

  • Hand wash and plants on a window ledge

    Home loans explained

    Fixed vs. variable loans

    Caitlyn Smith

  • Fruit at a market stall

    Home loans explained

    The different types of debt

    Caitlyn Smith

  • Person skateboarding

    Home loans explained

    Is a fixed interest rate home loan best for you?

    Caitlyn Smith

  • Colourful umbrellas

    Home loans explained

    How does a redraw facility work?

    Caitlyn Smith

  • Home loans explained

    Everything you need to know about settlement

    Diem Tran