Offset Account Calculator

How Does an Offset Account Work?

An offset account is a transaction account linked to your home loan. The balance in your offset account reduces the loan balance that interest is calculated on. For example, if you have a $500,000 loan and $50,000 sitting in your offset account, you only pay interest on $450,000. You still make the same monthly repayment, but more of each payment goes towards paying down the principal, so you pay off your loan faster and pay significantly less interest over the life of the loan.

The beauty of an offset is that your money is still accessible — it's a regular transaction account you can deposit into and withdraw from at any time. Unlike making extra repayments, you don't need to apply for a redraw to access your funds. Every dollar in the account is working to reduce your interest, every single day.

Offset vs Redraw: What's the Difference?

Both offset accounts and redraw facilities reduce the interest you pay, but they work differently and have important implications for investors:

• Offset account: A separate transaction account. Your money sits alongside the loan but is not part of it. There are no tax implications for withdrawing funds, and you have instant access to your money at all times.
• Redraw facility: Extra repayments are made directly into the loan. To access the funds, you need to “redraw” them. For investment properties, redrawing can create tax complications — the ATO may consider redrawn funds as a new borrowing, meaning the interest on the redrawn portion may not be tax-deductible if used for personal purposes. This effectively mixes personal and investment funds.

Offset Accounts for Investment Properties

For investment properties, an offset account is generally preferred over making extra repayments directly onto the loan. Here's why: the interest on an investment property loan is tax-deductible. If you make extra repayments, you reduce the loan balance and therefore reduce your deductible interest, which may not be optimal from a tax perspective. With an offset account, the loan balance technically remains the same (preserving the full deduction), while the offset balance reduces the interest you actually pay.

This distinction is particularly important for investors using a negative gearing strategy, where maximising deductible interest is a key part of the approach. Always consult your accountant or tax adviser to understand how offset accounts interact with your specific tax situation.