Offset Account Calculator
Interest and years saved by keeping money in an offset account against a home loan, with the repayment unchanged and the balance working from day one.
Interest saved
$194,606.17Keeping $50,000 in an offset account against a $500,000 loan at 6% over 30 years saves $194,606 in interest and pays the loan off 5.3 years early (64 months), with the repayment unchanged at $2,997.75 a month.
| Monthly repayment (unchanged) | $2,997.75 |
|---|---|
| Interest with no offset | $579,190.95 |
| Interest with offset | $384,584.78 |
| Interest saved | $194,606.17 |
| Loan paid off in | 24 years 8 months |
| Time saved | 5.3 years (64 months) |
How this was calculated
| Monthly repayment on $500,000 at 6.00% over 30 years | $2,997.75 |
|---|---|
| Total interest with no offset (360 months) | $579,190.95 |
| Total interest with $50,000 offset (296 months) | $384,584.78 |
| Interest saved | $194,606.17 |
Interest is calculated monthly on the loan balance less the offset balance; repayments stay the same so the loan is repaid sooner. Assumes the rate and offset balance stay constant.
Keeping $50,000 in an offset account against a $500,000 loan at 6% over 30 years saves $194,606 in interest and pays the loan off 5.3 years early (64 months), with the repayment unchanged at $2,997.75 a month.
Source: Moneysmart Last verified How we keep this accurate
How an offset account works
An offset account is a transaction account linked to your home loan. The bank charges interest on the loan balance less the money in the offset account, so $50,000 in offset against a $500,000 loan means interest is charged on $450,000. Your repayment does not change, so the interest you did not pay comes off the principal instead and the loan ends earlier. The money stays yours to spend at any time, which is the difference from an extra repayment.
Worked example
$500,000 at 6% over 30 years has a repayment of $2,997.75 a month and would cost $579,191 in interest. Keep $50,000 in offset from the start and the loan is repaid in 24 years and 8 months instead of 30 years, saving $194,606 of interest. Add $1,000 a month to the offset as well and the loan is gone in 19 years and 10 months, saving $365,988.
Offset vs paying down the loan
Financially an offset balance and an extra repayment of the same amount save the same interest, because both reduce the balance the interest is charged on. The offset keeps the cash accessible without a redraw and, for a property that might later become an investment, keeps the loan balance (and the deductible interest) intact. The trade-offs: offset loans often carry a slightly higher rate or a package fee ($300 to $400 a year), and a partial offset or a fixed-rate loan may not offset 100%. On a $50,000 balance a rate premium of 0.1% costs $500 a year, so the offset still wins; on a $5,000 balance it does not.
Frequently asked questions
How much does an offset account save?
The interest you would have paid on the offset balance, at the loan rate, every year, compounded. $50,000 offset against a 6% loan saves $3,000 in the first year, and because the principal falls faster the total over the life of a $500,000, 30-year loan is about $194,600 with the loan finishing more than five years early. Every dollar in offset earns the loan rate tax-free, which beats a savings account paying 4.5% before tax.
Is an offset account better than a savings account?
Almost always, if you have a home loan. Interest saved in an offset is not taxable, so a 6% loan rate is worth 6% after tax; a savings account paying 4.5% is worth about 3% after tax for someone on the 32% marginal rate (30% plus Medicare). The exception is when the offset loan charges a higher rate or a package fee that outweighs the saving on a small balance.
Should I use an offset or make extra repayments?
They save the same interest. Choose the offset if you want the money available without a redraw request, or if the property might become a rental later (extra repayments permanently reduce the deductible loan; an offset does not). Choose extra repayments if your loan has no offset facility, the offset costs more in rate or fees, or you want the discipline of not being able to spend it.
Does an offset account work with a fixed rate loan?
Usually only partly or not at all. Most lenders offer a full offset only on variable-rate loans; fixed-rate loans commonly have no offset or a partial offset (for example 40%). A split loan, part fixed and part variable with the offset against the variable part, is the usual compromise.
How is offset interest calculated?
Daily. Each day the bank takes the loan balance less the offset balance and applies the annual rate ÷ 365; the total is charged monthly. Money in the offset on the day the interest is calculated reduces that day’s interest, so salary paid into the offset and bills paid from it still helps for the days it sits there. This calculator uses a monthly approximation with the rate ÷ 12.
Sources and assumptions
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