Loan Calculator With Offset Account

Loan Payment Formula with Offset:

\[ PMT = (P - \text{offset}) \times \frac{r(1 + r)^n}{(1 + r)^n - 1} \]

Loan Amount (P):

Offset Amount:

Annual Interest Rate:

Loan Term:

years

Monthly Payment (PMT):

Unit Converter ▲

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1. What is a Loan with Offset Account?

A loan with an offset account is a mortgage product where a savings account is linked to your loan. The balance in this account "offsets" the loan principal, reducing the interest you pay while maintaining access to your savings.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula adjusted for the offset amount:

\[ PMT = (P - \text{offset}) \times \frac{r(1 + r)^n}{(1 + r)^n - 1} \]

Where:

$ PMT $ — Monthly payment amount
$ P $ — Original loan principal
$ \text{offset} $ — Amount in offset account
$ r $ — Monthly interest rate (annual rate ÷ 12)
$ n $ — Total number of payments (term in years × 12)

Explanation: The offset amount reduces the effective loan balance that interest is calculated on, resulting in lower payments or shorter loan term.

3. Benefits of Offset Accounts

Details: Offset accounts can save thousands in interest while maintaining liquidity. Interest is calculated daily on the net balance (loan minus offset), providing flexibility.

4. Using the Calculator

Tips: Enter the original loan amount, your current offset balance, annual interest rate, and loan term in years. The calculator shows your reduced monthly payment.

5. Frequently Asked Questions (FAQ)

Q1: How much can an offset account save me?
A: Savings depend on the offset balance and loan terms. A $50,000 offset on a $500,000 loan at 5% over 30 years could save ~$100,000 in interest.

Q2: Is an offset account better than making extra repayments?
A: Offset accounts provide similar interest savings while maintaining access to your funds, unlike extra repayments which reduce principal permanently.

Q3: Are offset accounts available for all loans?
A: Typically only available with variable rate loans. Some lenders offer partial offset accounts for fixed-rate loans.

Q4: Do offset accounts earn interest?
A: No, the benefit comes from reducing the interest charged on your loan rather than earning interest on savings.

Q5: Are there tax implications for offset accounts?
A: In some countries, offset accounts can be more tax-efficient than savings accounts because you're not earning taxable interest income.