Offset Account Calculator

An offset account is an everyday transaction or savings account linked to your home loan. The lender charges interest on the loan balance minus whatever is sitting in the offset, worked out daily. Owe $600,000 with $30,000 in the offset and you are charged interest on $570,000 — but you still owe $600,000, and the $30,000 is still yours to spend.

Because the required repayment does not change, the interest you are no longer charged goes off the principal instead. On that $600,000 loan at 6.15% with 28 years left, a $30,000 offset saves about $1,900 in the first year and — if the balance stays there — about $121,000 over the loan, which clears 2 years and 8 months early. The saving is bigger the longer the money sits there, which is why the calculator lets you add a regular amount each month.

Interest from a savings account is income and is taxed at your marginal rate. Interest an offset saves you is not income at all. So the fair comparison is not 6.15% against a savings rate of, say, 4.5% — it is 6.15% against what that 4.5% is worth after tax.

On a 30% tax rate plus the 2% Medicare levy, 4.5% from a savings account leaves 3.06% after tax. To match a 6.15% offset, a savings account would have to pay 9.04% before tax — 10.08% on the 37% rate, and 11.6% on the top rate. No savings account pays that, so for money that is going to sit somewhere anyway, the offset wins.

In interest they are identical: a dollar in the offset and a dollar paid off the loan both stop the same interest. The difference is getting the money back. Money in an offset is a bank balance. Money paid onto the loan has to be redrawn, and redraw is at the lender’s discretion — it can be limited or withdrawn.

If your home might become an investment property one day, the difference matters more. Redrawing money you paid off the loan counts as new borrowing for tax purposes, and whether its interest is deductible depends on what you spend it on. An offset avoids the problem because the loan balance never changed. Our pay off your home faster calculator compares both on your figures.

• The fee. Offsets usually come with a package fee or a monthly account fee. Divide the yearly cost by your rate to find the balance that pays for it: a $400 fee on a 6.15% loan needs about $6,500 sitting in the offset on average.
• The rate. Some lenders charge more for the loan that comes with the offset than for their basic loan. A small rate difference on a large loan can cost more than the offset saves.
• Full or partial. A 100% offset counts every dollar. A partial offset counts only a share, and the saving shrinks with it.
• How many accounts. Many lenders allow several offset accounts against one loan, so savings can be kept for separate purposes without losing any of the benefit.

An offset against an investment loan reduces interest you could otherwise claim as a tax deduction. If you have both a home loan and an investment loan, it usually makes sense for spare cash to sit against the home loan first, where the interest is not deductible and every dollar saved is a full dollar. Structure matters here, and it is worth setting up with a broker and your accountant together — our mortgage broking and tax teams work on it together.