Updated 2026-04-20 · Mortgage · Educational use only ·

Offset Mortgage Calculator

Interest saved by parking savings in an offset account

Calculate offset mortgage interest savings. See years saved and total interest reduced by offset balance. Enter mortgage balance to size affordability.

What this tool does

This calculator models how an offset account reduces mortgage interest charges over time. Enter your mortgage principal, interest rate, loan term, and the balance you typically hold in an offset account. The tool simulates month-by-month amortisation, calculating interest on the net balance after offsetting, then compares this to a standard mortgage without offset. The result shows the total interest saved in your currency and estimates how many years the offset arrangement shortens your loan repayment period. The calculation assumes a consistent offset balance and standard monthly payments. Results are illustrative only and reflect the mechanics of offset accounts under the stated conditions; actual savings depend on how your offset balance changes over time and on your lender's specific terms.

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Enter Values

Currency($)

Mortgage Balance($)

Interest Rate(%)

Term(yrs)

Typical Offset Balance($)

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Formula Used

I_{s a v e d} B_{t + 1} = I_{s t an d a r d} - I_{o f f se t} = B_{t} + i \cdot max (0, B_{t} - O) - M

I_{s a v e d}

Interest saved by offsetting

I_{s t an d a r d}

Interest with no offset

I_{o f f se t}

Interest with offset maintained

B_{t}

Mortgage balance in month t

i

Monthly interest rate (decimal)

O

Offset balance

M

Monthly payment (constant)

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Disclaimer

Results are estimates for educational purposes only. They do not constitute financial advice. Consult a qualified professional before making financial decisions.

How Offset Accounts Work

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

Offset Accounts vs Extra Principal Payments

Extra principal payment locks money into the mortgage permanently. Offset reduces interest charged while keeping the money accessible. Both produce functionally equivalent interest savings, but offset preserves liquidity. Trade-off: offset mortgage rates are sometimes slightly higher than standard rates.

A worked example

As a worked example, a mortgage balance of 500,000 at an interest rate of 6% over a 30-year term with a 50,000 offset balance projects 194,606.16 in interest savings. Your own figures update the result as you type.

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. Adjusting one input at a time toward extreme values shows which ones move the result most.

How the math works

Simulates amortisation month-by-month with standard monthly payment. Interest each month is charged on max(0, balance minus offset). Compares to the standard amortisation without offset to calculate savings. Assumes offset balance held constant. Results are estimates for illustration purposes only.

Testing at different rates

Running the calculation at a rate 2–3 percentage points higher indicates roughly what a rate change at renewal could bring — a view of how different rate scenarios affect the result rather than only today's rate.

What this doesn't capture

The figure shown reflects the core calculation; additional costs such as arrangement fees, valuation, legal fees, insurance, and any early-repayment charges (where applicable) sit on top and can add materially to the total cost of borrowing. Rates and product terms can also change over the life of the loan, which can shift the picture relative to this fixed-snapshot estimate.

Example Scenario

Offset estimate indicates $194,606.16 total interest saved, with the loan cleared sooner.

Inputs

Mortgage Balance:$500,000

Interest Rate:6%

Term:30 yrs

Typical Offset Balance:$50,000

Expected Result$194,606.16

This example uses typical values for illustration. Adjust the inputs above to match a specific situation and see how the result changes.

Sources & Methodology

Methodology

This calculator simulates a month-by-month amortisation schedule under two scenarios: a standard mortgage and an offset mortgage. For the standard mortgage, monthly interest is computed on the full outstanding balance. For the offset mortgage, the monthly interest charge applies only to the difference between the mortgage balance and the offset balance held (or zero if offset exceeds mortgage balance). The calculator assumes the offset balance remains constant throughout the term and applies a fixed interest rate. It then compares total interest paid across both scenarios to derive the interest saved. The model does not account for fees, early repayment, changes in interest rates, variations in offset balance over time, or tax treatment of savings. Results are estimates for illustration purposes and reflect the mechanical effect of reducing the interest-bearing balance by the offset amount.

References

Frequently Asked Questions

Is an offset account better than extra payment?

Functionally equivalent on interest saved, but offset preserves access to the cash while extra payment permanently reduces the balance. Offset suits keeping an emergency reserve liquid; extra payment reduces interest faster when the offset rate premium outweighs the offset benefit.

Do offset mortgages cost more?

Often slightly — an offset facility can carry a higher rate than a standard mortgage. Whether it pays off depends on the typical offset balance maintained.

Can I have multiple offset accounts?

Some lenders allow multiple offsets, others a single account. Multiple offsets can be useful for separating emergency fund, vacation fund, and tax reserves while still offsetting the mortgage.

What about partial offset?

Some lenders offer partial offset, where only a fraction of the savings balance reduces the interest-bearing amount. To model a 50% partial offset here, enter half the actual savings balance.

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