How the Offset Calculator Works
The calculator follows your loan one month at a time. Each month it charges interest on the loan balance less the offset balance, at one twelfth of the annual rate. It then takes off your scheduled repayment and adds your monthly savings to the offset. The repayment is worked out once from your balance, rate and remaining term, and it does not change. The example loan of $600,000 at 6.24% over 30 years has a repayment of $3,690.40 a month. For other loans, use our mortgage repayments calculator.
Because the repayment stays the same, a saving shows up as a loan that is repaid sooner, not as a smaller payment. The monthly savings box is money you add on top of the repayment. If the idea is new to you, how mortgage offset accounts work explains the daily interest mechanism step by step.
The results show two milestones separately. The first is the month the offset balance reaches the loan balance. The second is the month the loan is actually repaid. They are not the same date, because savings can cover the debt while the loan stays open until the scheduled repayments clear it.
Offset Account or Extra Repayments
Under the same cash flow, an offset account and extra repayments save the same interest up to the point where the savings cover the loan. In both cases the same starting savings and the same monthly amount reduce the balance that interest is charged on. In the example, both save $351,580.78.
The difference is what happens to the money. Savings in an offset stay separate from the loan, so they remain yours to use if the account allows it. Money paid into the loan is only available again if the loan has a redraw facility, and Moneysmart notes that access to an offset account or to redraw depends on the loan. The extra repayments tab repays the loan in month 222, while the offset tab keeps the loan open until month 265, because the scheduled repayment is held and the savings sit beside it.
Term Deposit Interest After Tax
A term deposit pays a fixed rate for the term, according to Moneysmart. The ATO treats the interest as taxable income when it is credited or received. The term deposit tab adds the interest to your taxable income and works out the extra income tax at 2026 to 2027 resident rates, plus the standard 2% Medicare levy. At $120,000 of taxable income that is 30% income tax plus 2% Medicare, so 32 cents of each extra interest dollar.
Offset savings are different. In Taxation Ruling TR 93/6 the ATO explains that with an offset arrangement no interest is derived by the customer, so there is no interest income on the offset balance. The saving is interest you are not charged, not interest you earn. For the wider comparison, read term deposit or offset account.
A deposit has to earn more before tax than the loan rate to keep up, because tax takes a share of its interest. The break even idea is the loan rate divided by one minus your tax rate. At 6.24% and a 32% rate that is 6.24 divided by 0.68, or 9.18%. The term deposit tab shows this break even rate for your income.
When Your Savings Cover the Loan
Covering the loan is a milestone, not the end of the loan. In the example, the offset balance reaches the loan balance in month 222, which is 18 years 6 months. At that point the loan is $157,694.67 and the offset is $161,000, so no interest is charged from there on. The loan itself stays open, and with the offset kept in place it is repaid in month 265, which is 22 years 1 month. Paying the same money into the loan as extra repayments repays it in month 222.
If your savings do not reach the loan balance within the term, the calculator says so and still shows when the loan is repaid. Once a loan is fully offset, extra savings stop saving interest, because interest cannot fall below zero.
Worked Example: $600,000 Loan, $50,000 Saved
The inputs are a $600,000 loan at 6.24% with 30 years remaining, $50,000 of starting savings, $500 a month on top of the repayment, a 12 month term deposit at 4.5% and $120,000 of taxable income.
| Result | Figure |
|---|---|
| Monthly repayment | $3,690.40 |
| Interest with no savings | $728,544.65 |
| Interest saved, offset account | $351,580.78 |
| Interest saved, extra repayments | $351,580.78 |
| Offset covers the loan | Month 222 (18 years 6 months) |
| Loan repaid, offset kept | Month 265 (22 years 1 month) |
| Loan repaid, extra repayments | Month 222 (18 years 6 months) |
The term deposit earns $2,250 of gross interest in 12 months, and $720 of that goes to tax and Medicare. After 12 months, loan less savings is shown below.
| Strategy | Loan less savings |
|---|---|
| Offset account | $533,570.58 |
| Extra repayments | $533,570.58 |
| Term deposit at 4.5%, after tax | $535,425.98 |
After 12 months the offset is about $1,855 ahead of the term deposit. The deposit would need to pay 9.18% before tax to match the 6.24% loan rate at a 32% tax rate. This is one example with the inputs above, so a different income, rate or term gives a different answer.
Fees and Fixed Rate Limits
Some fixed rate loans have fewer features than variable loans, according to Moneysmart, and that can include limits on offset accounts or extra repayments. Check what your loan allows before relying on either. For the wider comparison, see our guide to fixed and variable home loans.
A loan with an offset can also carry a package or annual fee, and any fee reduces the benefit. The interest saved here is before fees, so subtract a year of fees from each year of saving to compare. The calculator does not price a rate difference between loans with and without an offset, which needs a separate calculation for each loan.
Assumptions and Sources
- Monthly periods. Lenders accrue interest daily and post it on a schedule set by the loan, so real statements differ a little from this model.
- A full offset, where every dollar of savings reduces the balance that interest is charged on.
- Principal and interest repayments, held at the scheduled amount for the whole term.
- The interest rate stays the same for the whole term. Real rates change, so the results illustrate the maths and are not a forecast.
- Tax uses resident rates for 2026 to 2027 and the standard 2% Medicare levy, with no Medicare levy surcharge, tax offsets, reductions or exemptions.
- The term deposit holds your starting savings and pays its interest at the end of the term. Monthly savings wait aside earning nothing until then, and the comparison is made on the maturity date.
Sources
- Income Tax Rates Act 1986, Schedule 7 (compilation of 1 July 2026)Resident tax rates for 2026 to 2027
- ATO Taxation Ruling TR 93/6Tax treatment of interest offset arrangements
- Moneysmart: Mortgage offset accountsUpdated 29 July 2026
- Moneysmart: Term depositsUpdated 20 October 2026
- Moneysmart: Fixed vs variable home loan interest ratesUpdated 16 September 2026
- RBA statistical table F6: Lenders’ interest ratesAugust 2026 data, owner occupier variable rate, 6.24%
Offset Calculator: Frequently Asked Questions
How does an offset calculator work?
It compares the interest on a home loan with and without savings in a linked offset account. This calculator works in monthly periods, charges interest on the loan balance less the offset balance, and keeps your scheduled repayment unchanged.
Does an offset account reduce my monthly repayment?
In this calculator, no. The repayment stays the same and the lower interest means more of each repayment reduces the loan, so the loan is repaid sooner. Your actual repayment arrangements depend on your loan.
Is my mortgage paid off when my offset matches it?
No. The savings can cover the debt, but the loan stays open until it is repaid. The results show these as two separate milestones: the month the offset covers the loan and the month the loan is repaid.
Do I pay tax on offset savings?
Money in a genuine offset reduces the interest you are charged. It does not earn interest paid to you, so there is no interest income to declare on it. The ATO sets out this treatment in Taxation Ruling TR 93/6.
Are offset savings and extra repayments the same?
With the same rate, timing and amounts, they save the same interest until the savings cover the loan. The difference is access. Offset savings stay separate from the debt, while money paid into the loan can only be redrawn if your loan has a redraw facility.
How is term deposit interest taxed?
Interest is taxable income when it is credited or received. This calculator adds the interest to your taxable income and estimates the extra income tax and the standard 2% Medicare levy at 2026 to 2027 resident rates.
Can a fixed rate home loan have an offset?
It depends on the loan. Some fixed rate loans have fewer features than variable loans, so check what yours allows for offset accounts and extra repayments. See fixed and variable home loans for the wider comparison.
What happens when the offset is bigger than the loan?
Interest on the loan stops at zero. Savings above the loan balance do not save any more mortgage interest, so the calculator shows the cover milestone and then keeps running the repayments until the loan is repaid.
Get a Free Broker Check
A broker can check whether your loan has a full offset, what it costs and what extra repayments it allows. If you use a broker we refer you to, we may receive a referral commission when your loan settles.
Get a free broker checkThis calculator provides estimates only and should not be relied upon for financial decisions. Actual results depend on your lender, loan product and circumstances. NestPath is not a financial adviser, so seek independent advice before making financial decisions.