Why use this calculator
A mortgage offset account can save you tens of thousands of dollars in interest over the life of your loan. By holding savings in an offset account linked to your mortgage, you only pay interest on the difference between your loan balance and offset balance. This calculator quantifies exactly how much you stand to save, helping you decide whether an offset account is worthwhile despite potentially higher account fees.
How to use it
Enter your total loan amount, interest rate, loan term, and the balance you plan to maintain in your offset account. The calculator compares your monthly payments and total interest with and without the offset, showing your exact savings.
The formula
Interest is calculated on (Loan Amount - Offset Balance) instead of the full loan amount. Monthly Payment = P x [r(1+r)^n] / [(1+r)^n - 1], where P is the effective principal after offset. Total interest saved is the difference between total interest without offset and total interest with offset.
Worked examples
$500,000 loan at 6.5% over 30 years with $50,000 offset
Save approximately $316 per month and over $113,000 in total interest
$400,000 loan at 5.5% over 25 years with $80,000 offset
Significant monthly and long-term savings by reducing the effective principal by 20%
When people use it
- Evaluating whether an offset account is worth the fees
- Planning how much to keep in savings vs offset
- Comparing offset accounts across different lenders
- Calculating the true benefit of parking a lump sum in offset
Tips
- Keep as much money as possible in the offset account, even short-term funds
- An offset account effectively earns you a return equal to your mortgage rate, tax-free
- Compare offset account fees to the interest savings to ensure net benefit
- Even small offset balances create savings that compound over the loan term
Questions people ask
- How does an offset account work?
- An offset account is a transaction account linked to your home loan. The balance in this account is deducted from your outstanding loan balance when calculating interest. You only pay interest on the difference, effectively reducing your interest cost.
- Is an offset account better than making extra repayments?
- Offset accounts offer similar interest savings to extra repayments but with greater flexibility. You can withdraw funds from an offset account at any time without penalty, whereas redrawing extra repayments may be restricted or incur fees.
- Do I still earn interest on money in an offset account?
- No, offset accounts typically do not pay interest on your balance. Instead, the benefit comes from reducing the interest charged on your mortgage, which is usually a much higher rate than savings account interest.