OneTaskBy Tim King · Updated
Mortgage Offset Calculator
How an Offset Account Cuts Home Loan Interest and Years Off Your Term
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How the Mortgage Offset Calculator works
This mortgage offset calculator shows how much interest an offset account saves and how much sooner the loan is paid off. Money in the offset is subtracted from the loan balance before interest is charged, while the repayment stays the same, so more of each repayment goes to the loan.
Mortgage offset calculator formula
Each month interest is charged on the loan less the offset balance:
Interest = (loan balance − offset balance) × rate ÷ 12 Repayment = the normal repayment for the loan, unchanged
Because the repayment does not fall, the interest saved comes off the balance, so the loan is paid off early. The calculator runs the loan month by month with and without the offset, adding your monthly amount to the offset as it goes.
Worked example: a growing offset
A 500,000 loan at 6% over 30 years has a repayment of 2,998 a month. With 30,000 in an offset and 500 added each month, the loan is paid off in 22 years 7 months, 7 years 5 months early. Interest falls from 579,191 to 311,469, a saving of 267,722.
Worked example: a fixed balance
Keep 10,000 in the offset and add nothing, and the same loan is paid off in 28 years 9 months. Interest falls to 531,659, saving 47,532 and 1 year 3 months.
Mortgage offset reference table
A fixed offset balance on 500,000 at 6% over 30 years.
| Offset balance | Interest saved | Time saved |
|---|---|---|
| 10,000 | 47,532 | 1 yr 3 mo |
| 20,000 | 90,035 | 2 yr 6 mo |
| 30,000 | 128,318 | 3 yr 6 mo |
| 40,000 | 163,009 | 4 yr 6 mo |
| 50,000 | 194,606 | 5 yr 4 mo |
| 60,000 | 223,510 | 6 yr 2 mo |
| 70,000 | 250,048 | 6 yr 11 mo |
| 80,000 | 274,492 | 7 yr 7 mo |
| 90,000 | 297,068 | 8 yr 3 mo |
| 100,000 | 317,968 | 8 yr 10 mo |
| 110,000 | 337,359 | 9 yr 4 mo |
| 120,000 | 355,377 | 9 yr 10 mo |
| 130,000 | 372,149 | 10 yr 4 mo |
| 140,000 | 387,779 | 10 yr 9 mo |
| 150,000 | 402,359 | 11 yr 2 mo |
| 160,000 | 415,975 | 11 yr 6 mo |
| 170,000 | 428,697 | 11 yr 11 mo |
| 180,000 | 440,593 | 12 yr 2 mo |
| 190,000 | 451,717 | 12 yr 6 mo |
| 200,000 | 462,125 | 12 yr 10 mo |
Quick answers
- Every 10,000 in an offset saves 600 a year at 6%, before compounding.
- The saving is the same as the loan rate, with no tax on it as income.
- Adding to the offset each month has a larger effect than a one-off balance.
- The saving is biggest early in the loan.
- A redraw facility on a loan saves interest in a similar way.
- Keep repayments the same and the offset saving shortens how many years the loan runs.
FAQ
Is an offset account better than a savings account?
The offset effectively earns the loan rate, which is usually higher than a savings rate, and the saving is not interest income. Some offset loans have higher rates or fees, so compare the whole loan.
Does a partial offset save as much?
No. Some loans only offset a percentage of the balance. Multiply your offset balance by that percentage before entering it. A 40% partial offset on 50,000 counts as 20,000.
What if I want lower repayments instead?
Some lenders let you reduce the repayment instead of paying off early. The interest saved is then smaller, because the loan runs the full term.
See also: all Property tools, Pay, Bills, Debt, Investing, Saving.
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