Written by Calculate your savings with this offset account calculator
Using an offset account to reduce your interest payments can save you tens of thousands of dollars over the life of your home loan. Use Savvy’s smart home loan offset calculator to assist you in finding out exactly how much your offset account will save you over the years, as well as how it can shorten your home loan term.
Home loan offset calculator explained
How do I use the home loan offset calculator?
Savvy’s offset mortgage calculator shows you the amount of interest you can save on your home loan by linking it to an offset account. These useful transaction accounts work by offsetting the principal you owe on your home loan. This means for every dollar you have in your offset account, you pay interest on one dollar less of your principal loan sum.Â
Enter your loan amount, your interest rate and loan term into the offset mortgage calculator. Use the green arrow button to change your repayment frequency from monthly to fortnightly or weekly. Next, enter the amount you have in your offset account. Once you’ve inputted all of your information into the offset account calculator, you can view your results.
The green portion of the chart will show you how long it will take you to pay off your principal sum if your offset account balance remains constant. In your results table, you can see the dollar interest amount you can save, as well as how much time you’ll trim from your loan.
Do I have to pay to use an offset account?
Some lenders will charge an additional premium (usually around 0.1% on your interest rate) to use an offset account, but keep your eyes open and compare great home loan deals with Savvy, as many online lenders are now offering the use of an offset account free of charge.Â
Other types of offset account (such as partial offset accounts) only offset a set percentage of your principal sum, as opposed to a 100% offset, while others may come with ongoing account-keeping fees. Compare loan features and fees with Savvy to make sure you’re getting the best deal available before using the offset mortgage repayment calculator to work out exactly how much you can save.
How do offset accounts compare with redraw loan accounts?
There’s a fundamental difference between an offset and a redraw loan account, although the effect of having savings in either can be similar.Â
- An offset account is a separate transaction account which is linked to your home loan, so every cent in this account offsets the interest you pay on your loan.
- A redraw account, on the other hand, is an actual mortgage account which allows you to deposit, and subsequently withdraw from, any additional repayments towards your mortgage (although redraws may be subject to an application or annual caps)
The difference is that some lenders require you to apply to make redraws from your loan account, or place a cap on the number of redraws permitted per year, whereas most offset accounts allow you more freedom to use them like a daily transaction account. Use Savvy’s offset loan calculator to find out exactly how much you could save by using an offset account, but retain easy access to your savings at the same time.
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Other ways to reduce your loan interest costs
Increase the size of your deposit
The more you’re able to offer as a deposit, the less you’ll need to borrow and the lower your interest payments will be as a result. In addition, if you’re able to offer more than the standard 20% deposit, you’ll often be eligible to apply for the cheapest home loans (which lenders only offer to borrowers who can put up a larger deposit).
Make frequent additional repayments
If you’re determined to pay off your home loan sooner, make additional repayments whenever you’re able and as often as you can afford. Even an extra $30 a week can make a huge difference over the life of your loan, which is the equivalent in savings of just one cup of coffee each day.
Refinance to a lower rate
Check whether your home loan is up to date regularly – at least once every year or two – and refinance to a lower interest rate if you find one (as long as you don’t have to pay expensive early exit fees). Even if you stay with the same lender but regularly take advantage of lower interest rate loans as they are offered, you could save thousands overall on the interest you pay over the life of your loan.
Increase your repayments if possible
If you reach the end of your pay period and you still have money left over, consider increasing your regular loan repayments. You can do this either by making additional repayments towards a variable rate home loan account, transferring your spare money into an offset account or refinancing to a loan with a shorter term (and higher monthly repayments) so that you pay your loan off in less time.
Switch from monthly to fortnightly repayments
You’ll pay your loan off sooner and save on interest if you make your loan repayments weekly or fortnightly, instead of monthly.  This is because there are 12 months in one year, but 52 weeks or 26 fortnights – which means making repayments weekly or fortnightly results in paying slightly more per year off your loan, thus potentially saving you on interest overall.
