Home Loan Offset Calculator

Calculate the savings you can make by using an offset account to reduce your home loan interest payments.  Savvy shows you how.

Last updated on April 20th, 2022 at 02:59 pm by Cate Cook

Calculate your savings with this offset account calculator

Using an offset account to reduce your interest payments can save you tens of thousands of dollars over the life of your home loan.  Use Savvy’s smart home loan offset calculator to assist you in finding out exactly how much your offset account will save you over the years, as well as how it can shorten your home loan term.

Home loan offset calculator explained

How do I use the home loan offset calculator?

Savvy’s offset mortgage calculator shows you the amount of interest you can save on your home loan by linking it to an offset account.  These useful transaction accounts work by offsetting the principal you owe on your home loan.  This means for every dollar you have in your offset account, you pay interest on one dollar less of your principal loan sum. 

Enter your loan amount, your interest rate and loan term into the offset mortgage calculator.  Use the green arrow button to change your repayment frequency from monthly to fortnightly or weekly.  Next, enter the amount you have in your offset account.  Once you’ve inputted all of your information into the offset account calculator, you can view your results.

The green portion of the chart will show you how long it will take you to pay off your principal sum if your offset account balance remains constant. In your results table, you can see the dollar interest amount you can save, as well as how much time you’ll trim from your loan.

Do I have to pay to use an offset account?

Some lenders will charge an additional premium (usually around 0.1% on your interest rate) to use an offset account, but keep your eyes open and compare great home loan deals with Savvy, as many online lenders are now offering the use of an offset account free of charge. 

Other types of offset account (such as partial offset accounts) only offset a set percentage of your principal sum, as opposed to a 100% offset, while others may come with ongoing account-keeping fees.  Compare loan features and fees with Savvy to make sure you’re getting the best deal available before using the offset mortgage repayment calculator to work out exactly how much you can save.

How do offset accounts compare with redraw loan accounts?

There’s a fundamental difference between an offset and a redraw loan account, although the effect of having savings in either can be similar. 

  • An offset account is a separate transaction account which is linked to your home loan, so every cent in this account offsets the interest you pay on your loan.
  • A redraw account, on the other hand, is an actual mortgage account which allows you to deposit, and subsequently withdraw from, any additional repayments towards your mortgage (although redraws may be subject to an application or annual caps)

The difference is that some lenders require you to apply to make redraws from your loan account, or place a cap on the number of redraws permitted per year, whereas most offset accounts allow you more freedom to use them like a daily transaction account.  Use Savvy’s offset loan calculator to find out exactly how much you could save by using an offset account, but retain easy access to your savings at the same time.

Other ways to reduce your loan interest costs

Some more frequently asked questions about home loan offset calculations

Do I have to have a minimum amount in my offset account?  

No – you usually don’t need to have a minimum amount in your offset account, but the higher balance you have, the larger your interest savings will be.   Use our offset loan calculator to see the effect of having more money in your offset account. 

It’s important to note that since home loan interest with an offset account is calculated daily, even if your monthly balance goes down towards the end of your pay period, you’ll still be reaping the rewards of reducing the overall interest outlay.

Can I have more than one offset account?

Not usually – most lenders will limit you to one offset account per loan, although if you have a split rate home loan with two separate loan accounts, you may be permitted to have one offset account for each portion of the split.

Can I have my wages paid into my offset account?

Yes, you can – this is a very good practice to make your wages work harder for you.  In the early part of your pay period, almost all your wages will be used to offset your loan.  As you pay bills and withdraw money from your offset account, the balance will reduce, but you’ll still be far better off overall using an offset account in this way.

Does an offset account reduce my monthly repayments?

No – as you’ll see if you play around with figures in Savvy’s offset account mortgage calculator, the repayments you make on your loan will not be affected by the amount you have in your offset account.  However, the interest you pay daily will reduce in proportion to the balance of your offset account.

How is the offset amount calculated when it changes from day to day?

The interest you pay on your loan is calculated daily by your lender.  Therefore, when this calculation is made, the balance in your offset account is also added to the equation daily. For example, using a loan of $500,000 with a 3% p.a. interest rate, the daily interest calculation would be:

($500,000 x 0.03) divided by 365 = $41.10 interest per day

With a $50,000 offset account, the calculation would be:

($450,000 x 0.03) divided by 365 = $36.99 (per day interest)

Can an offset account be linked to a fixed rate home loan?

Yes – offset accounts can be linked to either variable rate or fixed rate home loans, although a fixed rate loan with an offset account is much rarer than a variable rate with one.  Fixed rate loans tend to offer a lower interest rate in return for less repayment flexibility.  These are more likely to come with caps on how much you can contribute each year compared to accounts attached to variable rate home loans.

Can I use an offset account and make additional repayments at the same time?

Yes, you can combine interest-saving features and make an effective dent in your home loan principal.  Combining additional loan features such as using an offset account and making additional repayments is a sure way to pay off your loan as quickly as possible and reduce your interest considerably.