Mortgage offset calculator

What the result means

A 100% offset account reduces the balance that interest is charged on, dollar for dollar, while the money stays available as cash.

How it is calculated

Monthly interest = max(loan − offset, 0) × r/12, while the repayment still follows the original schedule

• Offset: Constant transaction-account balance linked to the loan.
• r: Nominal annual loan rate.

Interest is charged on the net balance. The same repayment then clears principal faster, so the loan ends earlier.

Worked example

$50,000 offset on a $500,000 loan at 6%

A 25-year remaining term with a constant $50,000 offset.

Charged on

$450,000 rather than $500,000

Effect

Lower interest each month, earlier finish

The cash is still yours. The saving is interest the lender does not charge.

Offset is not a higher savings rate

The benefit is loan interest not charged, usually at the mortgage rate, which is typically higher than a savings rate. Fees for the offset feature can eat the benefit on a small balance.

This model holds the offset balance constant. In real life the balance moves with pay cycles. Partial offsets (for example 40%) are not modelled.

Questions