Mortgage Offset Calculator
Calculate how much interest and time your offset account balance saves on your home loan.
| Years Saved | 0 |
| Average saving per month (over the loan) | $0 |
| Interest Without Offset | $0 |
| Interest With Offset | $0 |
How a Mortgage Offset Account Works
A mortgage offset account is a savings or transaction account linked to your home loan. Every dollar in the offset account reduces the loan balance on which interest is calculated — but without actually reducing your loan balance (so you can withdraw it anytime).
The Maths
If your loan balance is $500,000 and you have $50,000 in your offset account, you only pay interest on $450,000. At 6.5%, that's $3,250 a year less interest — $271 a month.
Lenders generally calculate interest daily on the balance minus the offset and charge it monthly (check your contract). The calculator works monthly, so enter your typical balance, not your pay-day peak.
- Partial offset. Enter the effective amount: $50,000 in a 40% offset is $20,000. Against $700,000 at 6.5% over 30 years, that saves $109,425 and 2.0 years.
- Fixed rates. Offsets mostly come with variable loans; a split loan can put the offset on the variable portion.
How it's calculated
Take $50,000 in an offset against a $700,000 loan over 30 years at 6.5%, roughly what owner-occupiers on variable rates were paying in late 2026 (RBA table F6 shows a 6.2% average in July 2026, before the September rise).
- The repayment is $4,424 a month, set on the full $700,000. It doesn't change.
- Month one's interest is $3,521 on $650,000 instead of $3,792 on $700,000: $271 less, which comes off the principal instead. That compounds.
- By month 295 the balance ($45,798) is below the offset. Interest stops; every repayment after that is principal.
- The loan clears in month 306, not 360 — 4.5 yrs early — with $241,793 less interest ($651,018 instead of $892,811).
Most of the saving is the 54 repayments you never make — roughly $239,000 of it. The "average saving per month" result, $790, is the total spread over those 306 months, not what you save in month one.
Offset vs the alternatives
Four homes for spare cash; regular extras are modelled on the extra repayments calculator.
| Offset | Redraw | Savings account | Extra repayments, no redraw | |
|---|---|---|---|---|
| Effective return | Loan rate | Loan rate | Advertised rate, pre-tax | Loan rate |
| Taxed? | No | No | Yes | No |
| Access | Instant | Lender's rules | Instant | None |
| If the home becomes a rental | Deductibility preserved | Redraw is a new borrowing | n/a | Balance permanently lower |
| Government guarantee | Yes, if a separate deposit account | No — not a deposit | Yes, to $250,000 | n/a |
| Cost | May carry a rate loading or fees | Usually none | None | None |
What the offset is worth after tax
An offset avoids interest rather than earning it, so there's nothing to tax. To match a 6.5% offset, a savings account or term deposit must pay:
| Taxable income, FY 2026–27 | Marginal rate incl. Medicare | Savings rate needed |
|---|---|---|
| $18,201–$45,000 | 17% | 7.83% |
| $45,001–$135,000 | 32% | 9.56% |
| $135,001–$190,000 | 39% | 10.66% |
| $190,001+ | 47% | 12.26% |
Offset vs redraw if the home might become a rental
A $700,000 home loan, $50,000 spare, and a plan to rent the place out and buy again:
- Offset. The balance stays put, and once the home is rented its interest generally follows the rental use. Withdrawing the $50,000 is just spending savings.
- Extra repayment, then redraw. The balance falls to $650,000. Redrawing $50,000 for the new home is a new private borrowing to the ATO, so its $3,250 a year of interest isn't deductible — $1,268 a year at 37% plus Medicare.
Per the ATO, the security doesn't decide a loan's purpose. Whether rental interest reduces tax on salary from FY 2027–28 depends on when the home was bought (negative gearing). General information; worth advice before money moves.
Does the offset pay for itself?
Some banks charge for offsets through higher rates, account fees, or both (Moneysmart). Break-even balance = annual cost ÷ loan rate. A hypothetical 0.10% loading on $700,000 costs $700 a year and needs $10,769 at 6.5%. A $10,000 offset cuts first-year interest by only about $650.
Check it's actually linked
ASIC reported in July 2026 that banks had paid over $55 million in compensation for offset failures. Refinancing or switching products can break the link. Test: a month's interest should be near (balance − offset) × rate ÷ 12 — $3,521 in the worked example, not $3,792.
Sources
- RBA: Monetary Policy Decision, 29 September 2026, cash rate, table F6
- ATO: tax rates, TR 93/6, TR 2000/2, interest expenses
- Moneysmart: mortgage offset accounts
- ASIC 26-173MR, 29 July 2026
- APRA: Financial Claims Scheme