Why use this calculator
Most offset calculators get the mechanism wrong. They subtract the offset balance from the loan and re-amortise, which produces a smaller repayment that no lender will ever actually charge you. A real offset leaves your contracted repayment exactly where it is and reduces only the balance interest is charged on, so the same repayment clears more principal every month and the loan simply finishes early.
That distinction is the entire value of the product, and it is why this calculator runs the loan month by month rather than reaching for a closed-form shortcut. It also answers the question people really want settled: whether the money is better in the offset or in a savings account.
Because the interest you avoid is not income, it is never taxed, so an offset at a middling mortgage rate quietly beats a headline savings rate that looks far more attractive.
How to use it
- Enter the balance still owing rather than what you originally borrowed, which your latest statement shows as the current payout or closing balance.
- Enter the rate you are actually paying today, including any loyalty or package discount already applied, since the advertised rate is usually not the one on your account.
- Enter the years left to run, which is on the same statement as the remaining term and is almost never the original thirty.
- Enter what sits in the offset today, including the emergency buffer you never touch, because a permanent balance counts every single day.
- Add whatever surplus you park there each month, even money that only sits for a fortnight before the bills go out.
- Finally enter your taxable income, which is used only to work out the pre-tax savings rate you would need to match the offset.
What each result means
- Monthly repayment
- Your contracted repayment, which an offset account does not change. The benefit shows up as a shorter loan, not a smaller bill.
- Interest saved
- Total interest avoided across the remaining life of the loan compared with holding the same money somewhere else.
- Each $1,000 in the offset saves
- The interest that every $1,000 kept in the offset account avoids each year at your loan rate, while the loan balance is larger than the offset. Use it to decide whether spare cash belongs in the offset or somewhere else.
- Loan cleared earlier by
- How much sooner the balance reaches zero because more of each unchanged repayment goes to principal.
- Total interest without the offset
- What the loan costs in interest if you keep your savings in a separate account and the offset stays empty.
- Total interest with the offset
- What the loan costs once the offset balance is subtracted from the interest calculation every month.
- Offset balance when the loan clears
- What has accumulated in the linked account by payoff. It is still your money and stays fully accessible.
- Tax-free return on offset money
- Interest avoided equals your loan rate, and because avoided interest is not income it attracts no tax at all.
- Savings rate needed to match it
- The pre-tax savings account rate that would leave you equally well off after tax. Very few deposit accounts reach it.
The formula
The contracted repayment comes from the standard amortisation formula, where payment equals balance multiplied by (monthly rate multiplied by (1 plus monthly rate) to the power of the number of months) divided by ((1 plus monthly rate) to the power of the number of months, minus 1), and the monthly rate is the annual rate divided by twelve. Each month the interest charged equals (balance minus the offset balance, floored at zero) multiplied by the monthly rate. The balance then becomes balance plus interest charged minus the repayment, and the offset grows by the monthly top-up.
Interest saved = total interest with no offset minus total interest with the offset
The equivalent pre-tax savings rate = loan rate divided by (1 minus your marginal rate)
How this number is used in practice
The everyday version of this strategy costs nothing to run. Have your salary paid into the offset account, run all spending from a credit card with an interest-free period, and pay the card off in full from the offset on the due date. Your whole month of income sits against the loan the entire time instead of in a transaction account earning nothing, and on an average balance of a few thousand dollars that alone trims years off a long loan.
The discipline required is only that the card is cleared in full every single month, because one month of card interest at credit card rates wipes out a year of the benefit.
The choice between an offset and simply making extra repayments comes down to access. Both save almost identical interest, but money in an offset can be withdrawn at any time with no approval, while extra repayments sit in redraw where the lender can and sometimes does restrict access, reduce the facility, or reprice it.
For anyone whose income is uneven, who might change jobs, or who is building a deposit for another purchase, the flexibility of an offset is worth paying a modest package fee for. If your lender charges several hundred dollars a year for the package, compare that fee against the interest saved shown above before signing up.
The final row is the one that settles most arguments. At a 5.95 per cent loan rate and a 32 per cent marginal rate including the Medicare levy, you would need a savings account paying about 8.75 per cent before tax to do as well as leaving the money in the offset.
No at-call deposit account in the Australian market pays anything close, and neither does a term deposit. That is why the standard advice for anyone with a mortgage is to hold the emergency fund in the offset rather than in a high interest savings account, provided you keep the discipline not to spend it.
Worked examples
A 600,000 dollar balance at 5.95 per cent with 27 years left, 35,000 dollars offset and 500 dollars added monthly
Saves 204,254 dollars of interest and clears the loan 8 years 5 months early
The same loan with a static 35,000 dollar offset and nothing added each month
Still saves 79,679 dollars and clears the loan 3 years 3 months early
A 450,000 dollar balance at 6.4 per cent over 22 years with a 20,000 dollar buffer only
Saves 58,079 dollars of interest and finishes 2 years 3 months ahead of schedule
When people use it
- Deciding whether an offset package fee is justified by the interest it saves
- Choosing between a high interest savings account and the offset for an emergency fund
- Working out how much earlier the loan clears if you park a bonus or tax refund in the offset
- Comparing an offset against making the same money an extra repayment into redraw
- Showing a partner in concrete years what keeping the buffer in the offset is worth
Tips
- Have your salary paid straight into the offset. Even money that sits for two weeks reduces the daily interest calculation.
- Keep the emergency fund in the offset rather than a savings account. The after-tax return is far higher and the money stays instantly accessible.
- Check that the offset is a full 100 per cent offset. Partial offsets are sold with similar language and save considerably less.
- Compare the annual package fee against the interest saved before opening one. On a small balance the fee can exceed the benefit.
- Never reduce the repayment because the offset is growing. The entire benefit comes from keeping the repayment steady while the interest charge falls.
- If you may convert the home to an investment property later, use an offset rather than redraw. Paying down and redrawing can break the deductibility of the interest.
What it assumes, and where it stops being accurate
- Assumes a principal and interest loan at a fixed rate for the remaining term. Variable rates move and will change both the saving and the payoff date.
- Assumes the offset is a full 100 per cent offset. Partial offsets credit only a share of the balance and save proportionally less.
- Ignores account and package fees charged for the offset facility, which commonly run to several hundred dollars a year and should be netted off the saving.
- Assumes interest is calculated daily on the net balance and charged monthly, which is standard practice in Australia but not universal.
- Excludes lump sums, redraws, repayment holidays and rate changes. Any withdrawal from the offset reduces the saving immediately.
- The equivalent savings rate uses the 2026-27 Australian resident brackets plus the 2 per cent Medicare levy and ignores study loan repayments and the low income tax offset.
Terms used on this page
- Offset account
- A transaction account linked to a home loan whose balance is subtracted from the loan before interest is calculated.
- Redraw
- A facility that lets you take back extra repayments already made, subject to lender approval and sometimes fees.
- Full offset
- An offset that credits 100 per cent of the balance against the loan, as opposed to a partial offset.
- Marginal rate
- The tax rate applied to your next dollar of income, used here with the Medicare levy to compare against a savings account.
- Amortisation
- The process by which each level repayment covers interest first and reduces the principal with whatever is left.
Questions people ask
- Does an offset account lower my monthly repayment?
- No, and that is the most common misunderstanding. Your contracted repayment stays exactly the same. The offset reduces the interest portion of each repayment, so more of the same payment goes to principal and the loan finishes years early instead of costing less each month.
- Is an offset better than making extra repayments?
- The interest saved is almost identical, so the deciding factor is access. Offset money can be withdrawn instantly with no approval, while extra repayments sit in redraw which a lender can restrict or reprice. Offset also protects the tax deductibility of interest if the property later becomes an investment.
- Do I earn interest on the offset balance?
- No. An offset account pays no interest. The benefit is the interest you avoid on the loan, which is charged at a much higher rate than any deposit account pays and is not treated as income, so it is never taxed.
- How much do I need in an offset for it to be worth it?
- Divide the annual package fee by your loan rate to find the break-even balance. At a 5.95 per cent rate and a 395 dollar annual fee you need roughly 6,640 dollars permanently in the account. Below that the fee costs more than the offset saves.
- Can I have more than one offset account?
- Many Australian lenders allow several offset accounts against the one loan, which lets you separate an emergency fund, a holiday fund and everyday spending while every balance still counts. Check whether your lender charges per account and whether all of them are full offsets.
- What happens if I put the whole loan amount in the offset?
- Interest charged falls to zero and every repayment goes entirely to principal, so the loan clears extremely quickly. Some borrowers deliberately do this before selling or refinancing. The loan stays open and available, which can be useful, but check whether your lender closes it automatically at zero.
Use this with
Mortgage Offset Calculator answers one part of the question. These pick up where it stops: Mortgage Calculator, Refinance Break-Even Calculator, Loan Repayment Calculator and Home Affordability Calculator.
Where these figures come from
Figures and rules on this page follow Australian law and ATO guidance.
- MoneySmart - Home loans. Australian guidance on offset accounts, redraw and loan features
- Reserve Bank of Australia - interest rate statistics. Published lending and deposit rates used to sanity check inputs
- ATO: Tax rates for Australian residents. Income tax brackets for 2026-27
Mortgage Offset Calculator produces an estimate for general information. It is not financial, tax, medical, legal or engineering advice. read the full disclaimer. Spotted a wrong number? Report it and it gets fixed. The form picks up this calculator and the inputs you used.