About this calculator
A 100% offset account is a transaction account linked to your home loan. The balance in it is subtracted from your loan balance before interest is calculated — a $600,000 loan with $25,000 in offset is charged interest as if it were a $575,000 loan. The repayment does not change; instead, because less of it is swallowed by interest, more becomes principal, the balance falls faster, and the loan ends months or years early. That compounding is why a steady offset balance beats the same money in a savings account for most borrowers: savings interest is taxed at your marginal rate, while offset "earnings" are interest you never pay — and never taxed on.
Two habits make or break the benefit. First, the balance has to be there on the days interest is calculated — Australian lenders calculate interest daily and charge monthly, so money that lands in offset on payday and stays until the bills go out works hardest; this calculator models the balance on a monthly cycle, which slightly understates a salary that arrives early in the month. Second, an offset only offsets up to the loan balance — savings beyond the balance earn nothing there, and a partial offset (some lenders offer them on fixed loans) only counts a percentage. The default example below — $25,000 parked plus $250 a month added — is deliberately ordinary: no lump sums, no windfalls, just a working balance.
How to use it
- Enter your loan amount, rate and term — the repayment shown is the same with or without offset, because offset never changes it.
- Enter the balance you can park in offset from day one: everyday savings, a redraw-sized buffer, money waiting for a tax bill or a renovation.
- Add a monthly top-up if you are building the balance (a pay that lands in offset and is only partly spent works the same way — use your typical end-of-month balance growth).
- Compare total interest and the two payoff dates — and check the year table to see the balances diverge.
The formula
Because the payment is fixed and the interest shrinks, the principal component grows month by month — the loan amortizes faster on a curve, not a straight line. Offset balances in this model are credited at the start of each month and capped at the loan balance (offset beyond the balance earns nothing). Daily interest calculation at your lender will differ by small amounts.
Worked example
A $640,000 loan at 6.00% over 30 years with a constant $50,000 offset balance: the repayment stays $3,837 a month, but total interest falls from $741,364 to $536,699 — a saving of about $204,666 — and the loan clears in 25 years 7 months instead of 30 years. A growing offset works even harder: $10,000 today plus $500 a month added on a $400,000 loan at 5.50% saves about $126,996 and clears the loan in 20 years 9 months.
Sources: Standard amortization mathematics with interest charged on (balance − offset), the Australian 100% offset convention; monthly statement-cycle modelling. Last updated: October 2026.
Frequently asked questions
Is an offset account better than making extra repayments?
Mathematically they are identical while the money stays put — both reduce the balance interest is charged on. The difference is access: offset money remains yours in a transaction account, available instantly, while extra repayments go into redraw, which some lenders restrict, freeze on fixed loans, or make slower to access. For an emergency fund or money earmarked for a known bill, offset keeps the benefit without giving up the cash.
How much do I need in offset to make it worthwhile?
There is no minimum — interest is calculated daily, so every dollar-day counts — but the account fee matters. A typical offset package costs around $395 a year; at a 6% loan rate you need an average balance of roughly $6,600 just to break even on the fee ($6,600 × 6% ≈ $395). Above that, every extra $10,000 kept in offset saves about $600 of interest a year at 6%, tax-free.
Does offset work on fixed-rate loans?
Usually not, or only partially. Most Australian fixed loans either exclude offset or offer a partial offset (for example 40% of the balance counts). Variable loans — including split loans with a variable portion — are where 100% offset lives. If you fix, run this calculator on the variable portion only.
Why does the calculator say my effective rate is lower?
The "effective rate" line compares the interest you actually pay with what the same loan would cost with no offset, expressed against your headline rate. A $600,000 loan at 6% whose lifetime interest drops by a quarter behaves, cost-wise, like a loan at roughly 4.5% — it is a comparison yardstick, not a rate your lender quotes.
Offset or savings account — which wins after tax?
Offset, for most taxpayers. Interest earned in a savings account is taxed at your marginal rate (up to 47% including Medicare), so a 4.5% savings rate can be worth under 2.4% after tax. An offset against a 6% loan saves the full 6% with no tax event. The gap widens with your tax bracket — which is why offset is often described as a guaranteed, tax-free return equal to your loan rate.
What formula does this offset account calculator use?
Interest each month = max(0, loan balance − offset balance) × (annual rate ÷ 12). The repayment is the standard annuity payment on the full loan; every dollar of interest not charged becomes principal instead. Because the payment is fixed and the interest shrinks, the principal component grows month by month — the loan amortizes faster on a curve, not a straight line. Offset balances in this model are credited at the start of each month and capped at the loan balance (offset beyond the balance earns nothing). Daily interest calculation at your lender will differ by small amounts. The worked example on this page applies the formula step by step with real numbers, so you can verify the result by hand.