Offset Accounts

An offset account is an account designed to reduce the amount of interest you are charged on your loan or mortgage, by reducing your loan balance before the interest is calculated.

For example, if you have a loan with a value of -100,000, and an offset account with a value of 5,000, then your interest payable would be calculated on -95,000.

If your lender has provided you with an offset account for your loan, then the following steps will show you how to set it up.

Link the Accounts

You need to set up two separate accounts, one for your loan and one for your offset account. We recommend that you use the word Offset in the title of the offset account. For example, if your loan account is named "Home Mortgage", then we recommend you call the offset account "Home Mortgage Offset".

The loan account is set up in the normal way (Add a new account and select the account type "Loan / Mortgage").

To create an offset account, Add a new account to the workbook, and select the account type "Interest Offset".

To link the offset account to the loan account, you need to:
  1. Enter the allowable offset amount (this is the amount of the balance that can be used in the interest calculations, and is normally set to 100%).
  2. Select the loan you want to link it to by choosing an account from the list Loan for this Offset Account.


Statements and Transactions

All statements and transactions for the offset account are entered separately from the loan account. You need to create new statements for the offset account and add all the required transactions (or import them).

Interest Rates

The interest rates for the offset account and the loan account are maintained separately. If your offset account has the same interest rates as your loan, use the Copy Rates options from the Interest Rates view for the offset account.

Reporting

Most of the reports are designed to be run against the loan account, not the offset account. That is, you should select the loan account before running the required report.

The Interest Checker Report will automatically include the balance of the offset account when it calculates the Estimated Interest Paid for your loan. To see the details of the offset account interest you are saving, select the Offset Account tab in the report.

The Refund Calculator Report will automatically include the balance of the offset account when it calculates the refund amounts for your loan.

The Daily Interest Report provides a detailed breakdown of the loan account and offset account information, including the balances, daily interest rates, interest on each account, the allowable offset amount and the total interest that should have been charged per day.

The Planning Reports give you the option of including the offset balance in the calculations, so that you can instantly see how much you will save in interest charges over the life of the loan.

Exceptions

You should be aware of the following exceptions when using offset accounts in the software:
  1. Offset Account Balance Greater Than Loan Balance.

    Unfortunately your lender won't pay you interest on any offset amounts greater than the loan balance, so you effectively miss out on earning interest if your offset balance is greater than your loan balance. Within the software the interest deduction on the offset account is capped to the loan interest amount.

    For example, if you have a loan with a value of -100,000, and an offset account with a value of 105,000, then your interest payable would be 0. However the 5,000 extra in the offset will not result in an interest payment to you.


  2. Negative Offset Account Balances.

    Generally this scenario is not valid (that is, the banks do not allow you to overdraw your offset account). Within the software if the offset balance is negative it is treated as a zero balance.

    For example, if you have a loan with a value of -100,000, and an offset account with a value of -5,000 (overdrawn), then your interest payable would be calculated on the full loan balance of -100,000.