Is your offset worth the extra cost?
Compare offset interest savings with extra fees and a higher loan rate. Estimate the average balance needed to cover the difference.
By Ratey · General information for Australian borrowers.
An offset is worth its extra cost when the interest it saves exceeds any additional loan interest and fees. Compare the whole loan with a realistic average offset balance. A large balance on payday can give a misleading answer if most of it soon leaves. This calculator estimates an annual cost difference and break-even balance; it holds balances and rates constant, so it is a starting comparison rather than a repayment forecast.
Example: the balance changes the answer
These rates and fees are hypothetical, not current offers. On $600,000, the no-offset interest is $36,000 per year before any fees common to both options. The offset option costs $995 more before allowing for offset savings: $600 of extra interest plus $395 of extra fees.
At $20,000 average offset, the gross reduction is $1,220, leaving an estimated $225 annual benefit. At $10,000, the reduction is $610, leaving the offset option $385 more expensive. The same product can pass or fail the comparison depending on the balance actually retained.
Compare both loan options
Collect the rate and annual fees for an otherwise comparable loan without offset and for the offset loan. Include account charges and package fees you would actually pay. Convert a monthly charge to a yearly figure once: $10 per month is $120 per year. A fee already included in a package should not appear twice.
Moneysmart identifies both higher rates and fees as costs to weigh against offset savings. Keep the comparison specific to offers available to you; a headline advertised rate may have different eligibility conditions.
Use the balance you expect to keep
Write down money that is likely to remain after bills, planned purchases and annual expenses. If you keep $30,000 for half a year and $10,000 for the other half, a simple time-weighted average is $20,000. Entering $30,000 would overstate the balance by 50%.
Run a second case for a lower balance. An offset that only just covers its cost in an optimistic scenario deserves closer inspection. If a car purchase will reduce savings in three months, calculate that period separately instead of treating the current balance as permanent.
How the annual comparison works
Without offset, estimated cost equals loan balance multiplied by the annual rate, plus annual fees. With offset, estimated cost equals the loan balance less the average offset balance, floored at zero, multiplied by the offset loan rate, plus its annual fees. The difference is the estimated benefit.
The break-even balance equals the extra interest on the full loan plus the difference in annual fees, divided by the offset loan rate. This assumes a 100% offset. A negative requirement becomes zero. If the required balance exceeds the loan, offset savings alone cannot cover the costs in this model. At a zero offset-loan rate, compare the costs directly; division by that rate is undefined.
| Input | Illustrative amount |
|---|---|
| Loan balance | $600,000 |
| Rate without offset | 6.00% |
| Rate with offset | 6.10% |
| Additional annual fee | $395 |
| Average balance needed | About $16,312 |
Know what this estimate leaves out
The calculation does not reduce the loan through repayments, model deposit dates or allow rates to change. It also excludes the return you might receive elsewhere on the cash. Those are separate comparisons. An offset saving is not a cash payment into your account.
For a partial offset, ask the lender how much of the balance qualifies and how interest is calculated. Do not enter the entire account balance as though it received a 100% offset. For changing savings and loan balances, continue to the offset calculator.
Your next-step checklist
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Common questions
Is there one minimum balance that makes every offset worthwhile?
No. The threshold depends on your loan balance, the rate difference and additional fees. Two borrowers with the same savings can have different results.
Does a positive result mean I should switch?
It identifies a potential cost advantage under the inputs. Switching expenses, access needs and changing balances still need consideration.
What if my savings exceed the loan?
The estimate caps the interest reduction at the loan balance. Extra cash cannot create negative mortgage interest in this model.
Sources and assumptions
These primary sources support the explanations above. Examples use invented figures to show the calculation or decision; they are not available loan offers. Check your lender’s terms for your circumstances.
Calculations are estimates and do not establish borrowing eligibility. Read the calculation methodology.
Try the longer-term scenario
See how offset savings interact with a changing loan balance.