Maximize your savings with an offset account. Use this offsetting mortgage calculator to see how keeping cash in a linked savings account can reduce your interest payments and shorten your loan term.
Offsetting Mortgage Calculator
Monthly Payment: $0.00 (Unchanged)
Offsetting Mortgage Calculator Formula
With an offset mortgage, interest is calculated on the net balance (Loan Principal minus Offset Balance). The monthly payment typically remains the same as a standard mortgage, but more of that payment goes toward principal:
Since the interest portion is lower, the principal reduction portion is higher, accelerating the payoff of the loan.
Variables
- Loan Principal: The remaining balance on your mortgage.
- Offset Balance: The amount of money in your linked savings account.
- Net Balance: Principal minus Offset. Interest is charged on this amount.
- Monthly Rate: Annual Interest Rate divided by 12.
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What is Offsetting Mortgage Calculator?
An offsetting mortgage calculator demonstrates the benefit of linking a savings or checking account to your mortgage. In an offset arrangement, the money in your savings account is “offset” against your mortgage balance for interest calculation purposes.
For example, if you have a $200,000 mortgage and $20,000 in your offset account, you are only charged interest on $180,000. The money remains yours to withdraw if needed, but while it sits in the account, it works to reduce your mortgage interest every single day.
How to Calculate Offsetting Mortgage (Example)
Let’s assume a $300,000 loan at 6% interest for 30 years with $30,000 in an offset account:
- Standard Payment: Calculated on the full $300k, roughly $1,799/month.
- Interest Charge (Month 1): Instead of ($300k * 0.5% = $1,500), interest is ($270k * 0.5% = $1,350).
- Principal Paid: Since the payment is still $1,799, the extra $150 saved in interest goes directly to paying down the principal.
- Result: Over the life of the loan, maintaining this offset balance could save over $68,000 in interest and cut 4 years off the term.
Frequently Asked Questions (FAQ)
No. In an offset arrangement, you forgo earning interest on your savings. However, the mortgage interest rate you “save” is usually much higher than the savings interest rate you would earn, making it a tax-efficient way to use your cash.
Yes. The money in your offset account is accessible like a regular savings account. However, withdrawing funds increases the net balance of your mortgage, thereby increasing the interest charged in the following months.
Usually, no. Most offset mortgages keep the monthly payment fixed. The benefit comes in the form of more principal being paid off each month, which shortens the loan term.
It offers more flexibility. Paying extra reduces the principal permanently (you can’t easily get the money back). An offset account reduces interest while keeping your cash liquid for emergencies.