Offset Calculator: The Formula You Can Do Yourself, No Tool Needed

Most offset calculator pages just hand you a widget and ask you to trust the number. Here’s the actual formula behind it, a worked example, and the 100% versus partial offset distinction almost nobody explains.

Quick Answer: Offset Calculator

An offset calculator works out how much mortgage interest you save by keeping money in an account linked to your home loan. The formula is simple: offset balance × your loan’s interest rate ÷ 365 × days held. On $50,000 sitting in offset at 6.00% for a year, that’s roughly $3,000 in interest saved. Most Australian offset accounts are 100% offset, meaning every dollar counts. Some lenders offer partial offset instead, which only covers a portion of your balance.

The Formula You Can Do Yourself

• Start with your offset balance. This is the average amount sitting in your linked offset account, since it moves as you spend and get paid.
• Multiply by your loan’s interest rate. Use the actual rate on your home loan, not a rounded estimate, since even small differences add up over a year.
• Divide by 365, then multiply by the days held. Interest is usually calculated daily, so this step turns your annual rate into a daily saving, then scales it to how long the money actually sat there.
• A worked example makes it concrete. On a $600,000 loan at 6.00%, with $30,000 sitting in offset for a full year: $30,000 × 0.06 = $1,800 saved in interest for that year.

100% Offset vs Partial Offset

• Most Australian offset accounts are 100% offset. Every dollar in the account reduces your interest-charged balance dollar for dollar, with no cap on how much of your balance counts.
• Partial offset accounts are less common but real. These only offset a portion of your balance, sometimes just the first set amount, so the rest earns no interest benefit at all.
• This usually comes down to your loan type. Standard variable loans from major lenders are typically full 100% offset. Some fixed-rate or low-rate products offer partial offset or none.
• Always check your own loan’s offset type before assuming. Two loans with identical advertised rates can behave very differently here, and it’s not always obvious from the headline rate alone.

Why Offset Savings Are Effectively Tax-Free

• Offset money doesn’t earn taxable interest. Instead of paying you interest that counts as income, it reduces the interest you’re charged, which isn’t treated as taxable income.
• A regular savings account works differently. Interest earned there is taxable income, so a portion of the return effectively disappears at tax time.
• This makes offset a genuinely strong comparison point. A guaranteed, tax-free return equal to your mortgage rate is hard for a taxed savings account to match on a like-for-like basis.
• It’s still capped at your mortgage rate. The saving can’t exceed what your loan actually costs, so it’s not a way to beat your rate, just to avoid paying part of it.

Offset Savings vs Extra Repayments

• Both reduce the interest you pay, but differently. Extra repayments shrink your loan balance permanently. Offset money reduces interest charged while staying accessible.
• Offset keeps your money flexible. You can withdraw offset funds anytime for an emergency, unlike money paid directly off the loan on some products.
• Extra repayments can lock in the saving. Once paid off, that portion of the loan is gone for good, which suits people who don’t need quick access to the cash.
• The dollar-for-dollar interest effect is broadly similar. Whichever you choose, the underlying math is close to identical, so pick based on how much flexibility you actually need.

For related reading, see our guides to Guarantor: The Two Types, the Real Dollar Amount, and What It Costs You Later.

FAQ: Offset Calculator

What is the formula for calculating offset account savings?
Offset balance × interest rate ÷ 365 × days held. On $50,000 at 6.00% for a year, that’s roughly $3,000 saved.

What’s the difference between 100% and partial offset?
100% offset counts every dollar in the account. Partial offset only counts a portion, so the rest of your balance earns no interest benefit.

Are offset account savings taxed?
No. Offset reduces the interest you’re charged rather than paying you taxable interest, so the saving is effectively tax-free.

Is an offset calculator accurate if my balance changes daily?
A single flat calculation is only an estimate. Since interest is calculated daily, your actual saving reflects your balance’s daily average, not just a snapshot figure.

Should I use offset savings or make extra loan repayments instead?
Both cut interest similarly. Offset keeps your money accessible, while extra repayments lock the saving in permanently. Pick based on how much flexibility you need.

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