Offset Account Calculator

What is Offset Account?

A mortgage offset account is a transaction account linked to your home loan. The balance in your offset account is deducted from your loan balance before interest is calculated, effectively reducing the interest you pay.

How this calculator works

The calculator shows the interest savings from having money in your offset account. For example, if your loan is $500,000 and your offset balance is $50,000, you only pay interest on $450,000. Your repayments stay the same, but more goes toward the principal, paying off the loan faster. The comparison chart shows both scenarios — with and without offset — so you can see the cumulative effect. Unlike a savings account, offset savings are tax-free because you're reducing interest charged rather than earning taxable interest.

100% Offset vs Partial Offset

100% offset (the gold standard): every dollar in the account offsets a dollar of loan principal for interest calc. Most major Australian banks offer 100% offset on variable home loans (CommBank Wealth Package, NAB Choice Package, Westpac Premier Advantage, ANZ Breakfree). Partial offset (e.g. 40%) is available on some fixed-rate loans but much less effective.

Tax Advantage Over Savings Accounts

A savings account at 5% earns taxable interest — at 32% marginal rate, after-tax return is 3.4%. An offset account against a 6.10% mortgage 'saves' 6.10% with NO TAX (you're reducing interest charged, not earning income). Equivalent pre-tax return: 9% — better than virtually any savings or term deposit available.

Where to Put Your Cash

Most personal finance experts recommend: (1) all emergency fund into offset (instant access, max interest saving), (2) bills/rates/insurance saving fund in offset, (3) holiday/big-purchase savings in offset until needed, (4) salary deposits straight into offset, paying bills out as they come. Some couples maintain a small everyday savings account for buffer cash + offset for everything else.

Common Mistakes

(1) Confusing offset with redraw — REDRAW pulls cash back FROM extra mortgage payments (slower, sometimes fees), OFFSET keeps cash separately. (2) Splitting cash across multiple accounts (savings, term deposit, offset) instead of consolidating in offset. (3) Paying down credit cards in full from offset MONTHLY — fine. (4) Not using offset because 'I might need flexibility' — that's exactly what offset gives you.

Offset on Investment Properties

Different strategy: investors often DELIBERATELY keep investment property loan balance high (interest is tax-deductible) and put surplus cash in offset on OWNER-OCCUPIER loan (interest NOT deductible). This 'debt recycling' maximises deductible debt and minimises non-deductible debt. Get tax advice — there are technical traps if you withdraw from offset for non-investment purposes.

When to Pay Off Mortgage vs Offset

Mathematically equivalent if you have a 100% offset. Practical differences: (1) Offset has redraw at any time without fees; extra repayments may have redraw fees with some lenders. (2) Offset is psychologically harder to keep growing — money 'feels' like savings, easy to dip into. (3) Once a loan is fully offset, lenders may suggest closing the loan; some let you keep a $1 loan as an open facility for future use.

All calculations are performed in your browser — your data never leaves your device. Results are for general guidance only and should not be considered professional financial advice.

Built and maintained by Konstantin Iakovlev. Data sourced from the ATO and official Australian government sources.