Interest saved by parking savings in an offset account

How Offset Accounts Work

An offset account sits alongside the mortgage. Interest is charged on the mortgage balance minus the offset balance. A 500,000 mortgage with 50,000 in offset is charged interest on 450,000 — same monthly payment, but more goes to principal. The offset balance stays available as regular savings.

Why Offset Beats Extra Payment

Extra principal payment locks money into the mortgage permanently. Offset reduces interest charged while keeping the money accessible. Functionally equivalent interest savings, but offset preserves liquidity. Only disadvantage: offset mortgage rates are sometimes slightly higher than standard rates.

Run it with sensible defaults

Using mortgage balance of 500,000, interest rate of 6, term of 30, typical offset balance of 50,000, the calculation works out to 89,500.00. Nudge the inputs toward your own situation and the output recalculates instantly. The defaults are meant as a starting point, not a recommendation.

The levers in this calculation

The inputs — Mortgage Balance, Interest Rate, Term, and Typical Offset Balance — do not pull with equal force. Not every input has equal weight. Flip one at a time toward extreme values to feel which ones move the needle most for your situation.

How the math works

Simulates amortization month-by-month with standard monthly payment. Interest each month is charged on max(0, balance minus offset). Compares to the standard amortization without offset to calculate savings. Assumes offset balance held constant. Results are estimates for illustration purposes only. The working is transparent — you can verify every step yourself in the formula section below. No black box, no opaque "proprietary model".

Stress-testing the plan

Run the calculation at your current rate, then run it again at a rate 2–3 percentage points higher. That's roughly what a product reset could bring at renewal, and it's a useful check on whether you can afford the mortgage in a higher-rate world, not just today's.

What this doesn't capture

The figure excludes arrangement fees, valuation costs, legal fees, insurance, and any early-repayment charges — those can add several thousand to the headline cost. Rate changes at renewal for fixed-term deals will shift the picture further. Use this for the core interest/principal math and add the other costs on top.