Offset Account Calculator
See how your offset account balance reduces the interest you pay and shortens your loan term.
How Mortgage Offset Accounts Work
How it works
An offset account is a transaction account linked to your home loan. Your lender calculates interest on the net balance — the loan amount minus whatever sits in the offset account. If you owe $500,000 and have $60,000 in the offset, interest is charged on $440,000. The offset balance doesn't earn interest itself; instead, the interest you don't pay on your mortgage acts as the return.
Most Australian variable-rate home loans offer a 100% offset, meaning every dollar in the account reduces interest dollar-for-dollar. Some fixed-rate or basic variable products offer a partial offset (typically on a $10,000–$20,000 sub-account), or no offset at all. Interest is calculated daily on the net balance, so even short-term deposits — such as your salary sitting in the account for a few weeks before bills are paid — reduce total interest.
Because the offset doesn't generate taxable interest income, the effective return is your mortgage rate grossed up for your marginal tax rate. At a 6.2% mortgage rate and a 37% marginal tax rate, an offset delivers the equivalent of a 9.8% pre-tax return — risk-free. This makes it one of the most tax-efficient savings vehicles available to Australian homeowners.
When to use this calculator
- You want to compare the total interest saved by maintaining a specific offset balance over the life of your loan
- You're deciding whether a loan with a 100% offset (often at a higher rate or with an annual fee) is worth it compared to a basic variable product
- You have lumpy income — such as a bonus, tax refund, or inheritance — and want to see the impact of parking it in your offset
- You're weighing up whether to make extra repayments directly (which may have redraw restrictions) or keep funds accessible in an offset
- You want to estimate how much sooner your loan will be paid off if you grow your offset balance over time
Key concepts
- 100% offset vs partial offset
- A 100% offset reduces your charged balance dollar-for-dollar with no cap. A partial offset only offsets a fixed portion (e.g. the first $20,000). Most major bank variable-rate packages offer 100% offset; some low-rate or fixed products offer only partial or no offset.
- Daily interest calculation
- Australian lenders calculate mortgage interest daily on the outstanding balance (minus offset). This means depositing your salary on payday and spending it gradually throughout the month still saves interest compared to holding funds elsewhere.
- Tax-equivalent return
- Because offset savings are not taxable income, the effective pre-tax return equals your mortgage rate divided by (1 minus your marginal tax rate). At a 6% rate and 32.5% tax bracket, the equivalent pre-tax return is 8.9%.
- Offset vs redraw
- Both reduce your interest, but offset funds remain yours and can be withdrawn freely. Redraw facilities let you access extra repayments you've already made, but some lenders restrict access or charge redraw fees. For investment properties, keeping funds in an offset preserves the tax deductibility of the original loan balance.
Worked example — $80,000 offset on a $600,000 loan
Sarah has a $600,000 variable-rate mortgage at 6.20% over 30 years with monthly repayments. She maintains $80,000 in her 100% offset account throughout the loan.
| Without offset | With $80,000 offset | |
|---|---|---|
| Monthly repayment | $3,671 | $3,671 (unchanged) |
| Interest charged on | $600,000 | $520,000 |
| Total interest over loan life | $721,676 | $588,028 |
| Interest saved | — | $133,648 |
| Loan paid off in | 30 years | 25 years 2 months |
| Time saved | — | 4 years 10 months |
Sarah's repayment amount stays the same, but because less of each payment goes to interest, more goes to principal — accelerating the payoff. The $80,000 never leaves her account, so she retains full access to it as emergency funds.
If Sarah's marginal tax rate is 37%, the interest saved is equivalent to earning a 9.8% pre-tax return on that $80,000 — with zero risk and no capital gains implications.
Offset Account FAQ
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