How an offset account saves you interest
An offset account is a transaction or savings account linked to your home loan. Its balance is subtracted from your loan before interest is worked out, so the sum each month is interest = (loan balance − offset balance) × monthly rate. Park $50,000 in an offset against a $500,000 loan and you are charged interest on $450,000, not the full amount. Your contracted repayment does not change, so the interest you avoid comes straight off the principal and the loan falls faster than the schedule.
How much you save, and how much sooner you finish
The saving is close to your loan interest rate applied to the offset balance, every year the money sits there. At 6% p.a., a steady $50,000 offset avoids about $3,000 of interest in the first year alone, and more as the compounding effect brings the loan down. Over a full 30-year term that steady balance can save around $195,000 in interest and clear the loan roughly five years early. The calculator above runs the month-by-month numbers so you can see both figures for your own loan.
Offset account vs extra repayments
An offset and an extra repayment save the same interest, because both shrink the balance interest is charged on. The difference is access. Money in an offset stays available to withdraw at any time, so it can double as your emergency fund while still cutting the loan. Extra repayments are usually locked away unless your loan offers redraw. If you want to keep the cash reachable, the offset is the flexible choice, and many borrowers use both together.
A worked example
Take a $500,000 loan at 6% p.a. over 30 years, with a steady $50,000 kept in the offset. The monthly repayment is about $2,998, sized to the full loan. Without an offset you would pay roughly $579,000 in interest across the term. With the $50,000 offset in place the whole time, interest falls to about $385,000, a saving near $195,000, and the loan clears in about 24 years and 8 months rather than 30 years. Add money to the offset each month and both numbers improve further.
Frequently asked questions
How much will an offset account save me?
It depends on your offset balance, loan size and rate. On a $500,000 loan at 6% p.a. over 30 years, keeping a steady $50,000 in an offset saves roughly $195,000 in interest and clears the loan about 5 years sooner. The saving is close to what that balance would cost you in loan interest, because interest is charged on your loan minus the offset. Enter your own figures above to see your number.
How is an offset account calculated?
Each month the lender charges interest on your loan balance minus your offset balance, at your loan's monthly rate. So $50,000 in an offset against a 6% loan avoids about $3,000 of interest a year. Your contracted repayment stays sized to the full loan, so the interest you avoid goes straight onto the principal, and the loan shrinks faster. This calculator runs that maths month by month for the full term.
Is it worth putting money in an offset account?
For most borrowers, yes. Every dollar in an offset saves you your loan interest rate, tax-free, which is usually higher than a savings account pays after tax. The money stays available to withdraw, unlike extra repayments that are harder to get back without a redraw. The main catch is that some offset accounts carry a higher rate or an annual fee, so weigh the saving against those costs.
Can I offset 100% of my mortgage?
Yes, if your offset balance equals your loan balance you pay no interest at all, and your whole repayment reduces the principal. Few people hold that much cash, but partial offsets still help: a 10% offset cuts roughly 10% of your interest bill each month. A 100% offset also removes almost all benefit of holding the loan, so at that point some borrowers just repay it.
What is the downside of an offset account?
Offset home loans sometimes charge a slightly higher interest rate or an annual package fee than a basic loan without one, so a small offset balance may not cover the extra cost. Some lenders only offer a partial offset, or one linked to a limited number of accounts. And the benefit only applies while money sits in the account, so a balance you spend down quickly saves far less than a steady one.
Is an offset account better than making extra repayments?
They save the same interest dollar for dollar, because both reduce the balance interest is charged on. The difference is access: money in an offset stays yours to withdraw any time, while extra repayments are locked in unless your loan has redraw. An offset suits an emergency buffer or savings you may need, and extra repayments suit money you are sure you will not touch. Many borrowers use both.
This tool is a guide, not financial advice.
