Estimate the interest and time you could save on your home loan by keeping savings in an offset account.
This calculator shows how much interest and time you can save on your home loan by maintaining funds in a mortgage offset account. An offset account is a transaction or savings account linked to your home loan — the balance in the account is offset against the outstanding loan balance before interest is calculated each day. If your loan balance is A$500,000 and your offset account holds A$20,000, you pay interest only on A$480,000. This calculator compares the total interest and loan term with and without the offset balance, helping you understand the long-term dollar value of your offset account.
Each month, interest is calculated on the outstanding loan balance minus the offset account balance. This means a larger offset balance reduces the daily interest charge. The monthly repayment stays the same — more of each repayment goes toward principal, so the loan is paid off faster and with less total interest.
Formula: Effective balance = Loan Balance − Offset Balance. Monthly Interest = Effective Balance × (Annual Rate ÷ 12). Monthly Principal Repaid = Monthly Repayment − Monthly Interest.
Example: A A$500,000 loan at 6% (example rate — enter your actual rate) over 30 years: Without offset: monthly repayment = A$2,997.75, total interest = A$579,190.95. With a constant A$20,000 offset balance: total interest = A$489,156.34. Interest saved = A$90,034.61. Time saved off the loan = 2.5 years. (Note: this example assumes a constant offset balance throughout the loan — in practice your offset balance will fluctuate.)
Mortgage offset accounts are a popular feature of Australian home loans, offered by most major lenders on variable rate products and increasingly on fixed rate products (though offset is less common on fixed rate loans). A full offset account deducts 100% of the offset balance from the loan principal for interest calculation purposes. Some lenders offer partial offset accounts that only offset a percentage of the balance — full offset is generally preferred. The key advantage of offset over additional repayments is liquidity: money in an offset account is fully accessible like a regular transaction account (via debit card, BPAY, etc.), unlike additional repayments made directly to a standard home loan which may have restricted redraw. For property investors, using an offset account rather than making additional repayments is often recommended by accountants: if the investment property loan is eventually sold and replaced with a new loan for a different purpose, money in the offset can be withdrawn to redeploy — whereas additional principal repayments on a loan that has been "contaminated" by personal use can complicate the tax deductibility of any redraw. For owner-occupiers, the tax treatment is less complex and both additional repayments and offset are equally effective. Many Australian banks charge a premium for offset accounts — either as a higher interest rate on the loan or as a monthly fee. Check the net benefit of the offset against any additional fee to ensure it is worthwhile at your current offset balance.
Both reduce the interest you pay, but in different ways. Extra repayments reduce your loan balance directly, permanently lowering the interest-bearing principal. They are generally retrievable via redraw (subject to lender terms and potential fees), but the funds are not as accessible as a transaction account. An offset account keeps your money accessible in a separate linked account — the balance is offset against the loan for interest purposes, but you can withdraw it at any time without penalty. For investment property loans, offset is often preferred over extra repayments to preserve the ability to withdraw funds without creating "mixed-purpose" borrowing issues for tax purposes.
An offset account does not contaminate the deductibility of investment loan interest — only the effective interest actually charged on the loan after the offset is deductible, not the interest that would have been charged without it. From a tax perspective, this is the preferred approach for investment property loans because the funds in the offset remain separate from the loan and do not constitute a repayment followed by a redraw (which can affect deductibility of interest on the redrawn amount if funds are used for non-investment purposes). Consult your accountant for specific advice.
Some Australian lenders offer offset accounts on fixed rate home loans, but it is less common than on variable rate loans and often restricted to 100% offset on certain products. Lenders that do offer it may charge a higher rate or a fixed offset fee. On a split loan (part fixed, part variable), the offset typically applies only to the variable portion. Check your specific loan product's terms and conditions — the option to have an offset on a fixed rate loan is a premium feature worth confirming with your lender.
A full offset account offsets 100% of the account balance against the outstanding loan balance for interest calculation — every dollar in the offset saves interest on the loan at the full loan rate. A partial offset account only offsets a fraction of the balance — for example, a 40% partial offset account holding A\$20,000 only offsets A\$8,000 against the loan. Full offset accounts are standard and preferred; partial offset accounts are rare today and generally not worth the complexity. Always confirm you are getting a full offset when comparing loan products.
Since interest is calculated daily on the effective balance (loan minus offset), having your salary credited directly to the offset account maximises the days your money is reducing the loan balance. Throughout the month before bills are paid, your salary sits in the offset, reducing the interest-bearing balance. This is why many Australian home loan strategies recommend consolidating all spending onto a low-fee credit card (paid in full monthly from the offset), with the salary credited directly to the offset — maximising the time that money is working in the offset account. This strategy is most effective for large offset balances relative to monthly spending.
No — interest saved through an offset account is not taxable. Because you are not earning interest on the offset balance (you are simply reducing the interest charged on the loan), there is no interest income to declare. This makes offset accounts particularly tax-effective compared to savings accounts, where the interest earned is assessable income taxed at your marginal rate. Effectively, the saving is equivalent to earning a tax-free return on your offset balance equal to the home loan's interest rate — a significant advantage for high-income earners.
Disclaimer: The information, rates, and figures provided on this page are for educational and illustrative purposes only and do not constitute financial advice. The interest saving and time saving shown are estimates based on a constant offset balance for the full loan term — actual savings will vary as your offset balance changes over time. Interest rates are examples only; actual savings depend on your loan's interest rate, the offset account balance maintained, and your lender's specific offset product terms. Consult a licensed mortgage broker or financial adviser for advice specific to your circumstances.