What does the offset balance on this page actually do?

It sits in an account linked to your loan and cuts the balance you are charged interest on, dollar for dollar. The bank pays you nothing on it. Enter the amount you plan to keep there and the calculator sets Total interest without offset beside Total interest with your offset.

What is the pre-tax equivalent return shown here?

It turns the interest your offset saves into the rate a taxable investment would need to earn to leave you as well off. Saved interest is not taxed, so the page divides your mortgage rate by one minus your marginal tax rate, using the income you entered.

Will the ATO tax the money sitting in my offset?

No. The balance earns no interest, so there is nothing to declare. A savings account paying the same amount would be taxed at your marginal rate, and that difference is what the pre-tax comparison on this page puts a number on.

Why does this page leave the Medicare levy and HECS out?

It uses your income tax bracket alone to keep the comparison simple. The 2% Medicare levy and any study loan repayment would raise your real marginal rate, so the true equivalent return is a little higher than the figure shown.

Should I use an offset or a redraw facility with this loan?

Both cut interest by putting spare money against the loan, so the interest saving shown here would be much the same either way. The difference is access. An offset is a separate account you can draw on at any time, while redraw means paying into the loan itself and asking for the money back, which can be slower or carry a fee. Redraw loans sometimes come with a slightly lower rate.

Where does the starting interest rate on this calculator come from?

From the Reserve Bank's average variable rate for existing owner-occupier loans, series FLRHOOVA, which we update from time to time. It is an average across lenders, so overwrite it with the rate on your own loan statement.

Is paying into the offset better than investing the money?

It depends on your loan rate, your tax rate and what the investment can realistically return after fees. The pre-tax equivalent return here is the figure to beat: if an investment is unlikely to clear it after costs, the offset is the lower-risk choice. This is general information, not personal financial advice, and a licensed adviser can look at your whole situation.

Mortgage and offset calculator

What will this home loan cost you each month?

Repayments, total interest and what an offset saves.

Your loan details

Loan balance (principal)

Years remaining on your loan

Your home loan interest rate (auto-filled, editable)

Auto-filled with the RBA average variable rate (6.2%). Enter your own rate for an exact result.

Estimated property value (optional)

Based on your estimated property value, not a bank valuation.

Compare with an offset account

Your income (after any salary sacrifice)

Calculate your pay on the main calculator to carry it over automatically.

Your repayment

Example

$3,282.91each month

Example for a $500,000 loan over 25 years at 6.2%. Enter your loan balance above.

An offset account reduces the interest on your home loan without earning taxable interest itself. See how much that's worth compared to a taxable return.

Nothing about your repayment will change

That is the part people find hardest to believe, and it is why many decide an offset account did nothing for them. Money goes in. The direct debit comes out the same size as last month. From the outside the account behaves like a savings account with a duller name.

What changed is inside the repayment. Interest is charged on what the loan owes, and money sitting in the offset is subtracted from that figure before the sum is done. Less of your repayment is spent on interest, so more of it lands on the loan itself. You do not feel it in your budget. You feel it at the end, when the loan runs out of years earlier than the schedule said it would.

The direct debit does not move. The share of it that reaches the loan does.

On most loans interest is counted daily, so timing beats size

On most home loans the sum runs every day, so what counts is the balance held across all the days, whatever figure you happen to see when you log in. A modest amount that stays put for a year does more work than a large amount parked for a fortnight.

That changes what the account is for. Wages land in it, bills leave it through the month, and every day in between is quietly shrinking the figure interest is charged on. Nobody has to do anything clever with it. The account mainly has to be the one your pay arrives in.

Money offset early is worth more than money offset late

A loan is at its largest on the first day and its smallest on the last. Interest follows the balance, so the early years carry most of it. The same amount held in offset during those years removes more interest than it would near the end, and no amount of discipline later fully makes that up.

The same arithmetic explains something the fields above will show you if you try it. Stretching the term lowers the repayment and raises the total interest, usually by more than people expect. The loan term is a larger lever than the interest rate, and it is the one borrowers are most often invited to pull.

What you have borrowed, against what it is worth

Enter a property value and the page also shows the share of it you have borrowed and the share that is yours. Lenders price loans off that split, because it decides how much of their money is exposed if a sale disappoints. Past a certain share they usually add mortgage insurance, and that is worth understanding before you assume it is on your side: the lender takes out the policy, you pay for it, and it covers the lender.

Your equity moves for two reasons, the loan shrinking and the property value changing. Only the first is in your hands, and it is the one an offset account speeds up.

What this page cannot see

It cannot see fees, and it assumes the rate you enter holds for the whole term, which no rate does. It does not know whether your offset is full or partial, whether your lender charges to keep it open, or whether your particular loan allows one at all. Those are worth asking about before you move money anywhere.

So read the result as a comparison between choices rather than a forecast of the years ahead. It is good at showing which way a decision points and roughly how hard it pushes, which is usually the question you actually have. Anything narrower than that belongs to your lender.

Open the pay calculator

Read how an offset compares with savings and redraw

Worked example: $600,000 borrowed with $40,000 in offset

This runs the calculator's default rate of 6.2% a year over 30 years, with $40,000 left in a linked offset account for the whole term. The repayment is set on the full loan, so the offset changes how each repayment splits between interest and principal and leaves the amount you pay each month exactly where it was.

Monthly repayment on the full loan$3,674.81
Total interest with an empty offset$722,935.52
Total interest with $40,000 offsetting$543,915.70
Interest saved over the loan$179,019.82
Loan cleared ahead of schedule by4 years

On a taxable income of $110,000 the top tax rate is 30%. A dollar parked in the offset therefore does the job of a savings account paying roughly 8.86% before tax, because the interest it avoids is never counted as income.

Offset balance against total interest on the same $600,000 loan over 30 years
Offset balance	Total interest	Interest saved	Paid off sooner by
$0	$722,935.52	$0.00	no change
$20,000	$625,048.88	$97,886.64	2 years 2 months
$40,000	$543,915.70	$179,019.82	4 years
$80,000	$416,593.45	$306,342.07	6 years 11 months

Official references for rates and interest

Cash rate targetrba.gov.au
The Reserve Bank policy rate that variable home loan rates move with.
Statistical tablesrba.gov.au
Table F6 lists average lending rates for owner-occupier loans; the default rate above was checked against it.
Interest from bank accountsato.gov.au
Confirms that interest earned on savings is taxable income, which is the basis for the before-tax comparison.
Individual income tax ratesato.gov.au
Where the top rate used in the comparison is published.