Offset Mortgage Calculator

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

An extra principal payment locks money into the mortgage until the loan is repaid or refinanced. Offset reduces the interest charged while keeping the money accessible. For the same amount, held constant at the same rate, the two produce equivalent interest savings. The difference is liquidity. The 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

Term and Interest Rate are the larger levers: a 1% change in either moves Interest Saved by Offset by 1.78%, against 0.22% for Mortgage Balance. At the defaults, one percentage point on the rate moves the saving from about 194,600 to about 257,400, the biggest single lever, because a higher rate raises the value of every unit not charged interest. Raising the offset balance 10% to 55,000 adds roughly 14,800, while raising the mortgage balance 10% adds only about 4,100, since a larger loan dilutes the offset's share. Doubling the offset to 100,000 lifts the saving to about 318,000: less than double, because the bigger offset also clears the loan sooner (296 months down to 254), so it saves interest over fewer months, and once the offset covers the whole remaining balance further offset adds nothing.

How the math works

The simulation runs the amortisation month by month with the standard monthly payment held constant. Each month, interest is charged on the mortgage balance minus the offset balance (never below zero), and the payment then reduces the balance. The same schedule runs again without the offset, and the difference between the two interest totals is the headline saving. The offset balance is assumed constant throughout.

Testing at different rates

Rates rarely hold still for thirty years. The saving scales with the rate itself: every point a lender charges raises the value of each unit that escapes interest, so the offset is at its most valuable in high-rate periods, which are the same periods when the mortgage costs most. Re-running the calculation at a higher or lower rate shows how far the effect moves for your own figures.