Offset Account Calculator FY2026-27
This calculator works out how much interest an offset account saves on a home loan, and how much sooner the loan is paid off — from your loan balance, interest rate, remaining term and offset balance, using the standard monthly amortisation formula (the same engine behind this page's repayment/total-interest figures, cross-checked against MoneySmart's own mortgage calculator).
Enter your loan details and how much sits in your linked offset account. If you also expect to keep adding a regular amount to the offset account (rather than spending it), enter that too — it compounds the saving over time.
Calculate your offset account saving
Fixed monthly repayment: $3,597 — unchanged by the offset balance; the offset only changes how much of it goes to interest vs principal.
Interest saved over the life of the loan: $202,174 (vs $695,029 total interest with no offset)
Time cut off the loan: 4 years 8 months — new payoff time 25 years 4 months instead of 30 years
That $50,000 offset balance is effectively earning you 6% completely tax-free, guaranteed — because it's a reduction in interest CHARGED, not interest income, there's no tax event to declare (see "How this is calculated" below).
This is general information, not financial or tax advice, and is not intended to be relied on for making decisions about a financial product. Consider advice from a licensed financial adviser (and a registered tax agent for tax questions) before making any financial decisions.
Estimates for general information — not financial or tax advice. Method, rates and sources are published below.
Interest saved by offset balance, on a $600,000 loan at 6% over 30 years
Fixed monthly repayment on this reference loan: $3,597, total interest with no offset: $695,029. Figures below assume the offset balance stays steady (no extra monthly amount), computed from the engine above.
| Offset balance | Interest saved | Time cut | New payoff time |
|---|---|---|---|
| $10,000 | $47,979 | 1 year 1 month | 28 years 11 months |
| $25,000 | $112,051 | 2 years 7 months | 27 years 5 months |
| $50,000 | $202,174 | 4 years 8 months | 25 years 4 months |
| $100,000 | $338,658 | 7 years 10 months | 22 years 2 months |
How this is calculated
Your fixed monthly repayment is worked out first, from the standard reducing-balance annuity formula (nominal monthly rate = annual rate ÷ 12) — the same formula and convention MoneySmart's own mortgage calculator uses; this page's repayment and total-interest figures reproduce MoneySmart's live figures to the exact dollar across three test cases (a $600,000/6.0%/30-year case, a $500,000/5.5%/25-year case and a $750,000/6.5%/30-year case).
All dollar figures on this page are nominal — not adjusted for inflation. Over long loan terms a dollar saved in the future is worth less in real purchasing power than a dollar saved today.
From there, the offset saving is a month-by-month simulation, not a shortcut formula: each month, interest is charged only on the loan balance ABOVE your offset balance (never less than $0), the repayment stays fixed at the amount above, and whatever isn't consumed by interest pays down the principal. If you're adding a regular extra amount into the offset account, that amount grows the offset balance itself each month (compounding the saving over time) rather than being paid onto the loan directly. The loan is done once the simulated balance reaches zero — which happens sooner than the original term whenever there's an offset balance in place, because more of every repayment is going to principal instead of interest.
On the "effectively tax-free" comparison: a savings account pays you interest, which is assessable investment income you must declare and which is taxed at your marginal rate. An offset account pays you nothing — it simply means your lender charges less interest in the first place. Because that's a reduction in an expense, not a receipt of income, there's no tax event at all, so (for an owner-occupier home loan, which isn't tax-deductible either way) the full mortgage rate is effectively what that money "earns" you, after tax, with nothing to report. A taxable savings account paying the exact same headline rate nets you less once tax is taken out — which is the general reason (not a recommendation of any specific product) an offset account is usually presented as more valuable than a savings account paying an equivalent rate, for money you were going to keep in cash anyway.
Sources
- MoneySmart — Mortgage calculator (used to verify this page's repayment and total-interest formula) — verified 2026-07-11
- MoneySmart — Mortgage offset accounts (how an offset account works day to day, daily interest calculation, and the difference from a redraw facility) — verified 2026-07-11
- ATO — Investment income (interest income is assessable and must be declared on your tax return) — verified 2026-07-11
Assumptions used here follow the same general approach as ASIC's MoneySmart calculators and may not reflect every personal circumstance — see "What this doesn't model" for specifics.
What this doesn't model
- Interest rate changes. This calculator assumes the interest rate you enter stays fixed for the entire simulated term. Real variable rates move — a rate rise or fall partway through would change both the fixed repayment and the actual interest saved from that point on, in ways this simulation doesn't attempt to forecast.
- Account fees. Some lenders charge an annual package fee for a loan eligible to be linked to an offset account, or a monthly fee for the offset account itself — not modelled here. Compare any such fees against the interest saving this calculator shows before assuming an offset arrangement is worth it.
- Redraw facilities. A redraw facility can achieve a similar interest saving by applying extra repayments directly to the loan, but works differently from an offset account — see the FAQs above, and the negative gearing calculator if you're weighing this up for an investment property, where redraw vs offset can also have different tax consequences.
- Interest-only periods. This calculator assumes principal-and-interest repayments from month one. An interest-only period at the start of the loan — during which the offset balance would still reduce the interest charged, but no repayment goes toward principal at all — isn't modelled.
- Daily interest calculation. Real home loan (and offset) interest is typically calculated daily, with the offset balance subtracted from the loan balance each day before that day's interest accrues. This calculator simulates MONTHLY, not daily, interest — a close approximation for an offset balance that stays fairly steady through the month, but not identical to a daily-calculating lender's own cent-level figures.
- Partial offset arrangements. Some loans only offset a portion of the linked account balance rather than the full amount. This calculator assumes a full (100%) offset throughout.
- A changing offset balance. Besides the optional steady monthly extra, this calculator assumes the offset balance you enter doesn't otherwise fluctuate — no real household's transaction account stays perfectly flat month to month.
- Rounding artifacts in monthly repayments. Results compare the simulated offset scenario against the loan's closed-form totals, and repayments are rounded to the cent — this can shift displayed figures by up to about one month of time or a few dollars of interest over a full loan term, but never changes the direction or scale of the savings shown.
If any of these apply to you, your actual interest saved and time cut will differ from the figures above.
Frequently asked questions
How does an offset account actually save me interest?
An offset account is a separate transaction account linked to your home loan. Your lender doesn't pay you interest on the money sitting in it — instead, each month it subtracts your offset balance from your loan balance BEFORE working out the interest charge, so you're only charged interest on the difference. Your scheduled repayment doesn't change, so with less interest to cover, more of every repayment goes toward the loan's principal instead — which is what shortens the loan and reduces the total interest paid over its life. On this page's example (a $600,000 loan at 6% with a $50,000 offset balance), that's $202,174 less interest paid over the life of the loan, and the loan clears 4 years 8 months sooner.
Is money in an offset account really the same as earning tax-free interest?
It behaves like it for owner-occupiers, even though technically nothing is "earned". A savings account pays you interest, which is assessable income you must declare and pay tax on at your marginal rate — so a 6% savings rate only nets you 6% minus your marginal tax rate. An offset account doesn't pay you interest at all; it reduces the interest your lender charges you, which isn't income and isn't taxed. Since your home loan usually isn't tax-deductible either, the full mortgage rate effectively becomes your after-tax "return" on that money, with no tax event to report — better than a taxable savings account paying the same headline rate.
What's the difference between an offset account and putting extra repayments into my loan (redraw)?
They can save similar interest, but they work differently. An offset account is your own money, sitting in an account you can still spend from, pay bills out of, or move around at any time — it just happens to reduce the interest calculation on your loan. A redraw facility instead applies extra repayments straight onto the loan itself, reducing the loan balance directly; getting that money back out later depends on your specific loan terms and may not be instant. For an investment property, this distinction matters for tax too: redrawing funds and then spending them on something other than the investment can create ATO deductibility complications for the loan, while money resting in an offset account was never actually paid off the loan, so it doesn't raise the same issue. This calculator only models an offset account, not a redraw facility.
Does a bigger offset balance always help, and is there a limit?
Yes to the first part — the more you keep in the offset account, and the longer it stays there, the more interest you save, right up to the point your offset balance covers your entire outstanding loan balance, at which point you're charged no interest at all. There's no legislated cap on how much you can hold in an offset account the way there is for something like a super contributions cap; it's simply your own savings sitting in a linked account. What DOES limit the benefit in practice is your own cash flow: this calculator assumes the offset balance (and any extra monthly amount) stays in the account rather than being progressively spent down, which won't match every household's real month-to-month pattern.