Offset vs Extra Repayments — Which Saves More?

If you've got spare cash each month, the most common mortgage question is: should I keep money in an offset account or make extra repayments? Both can reduce interest and help you pay your loan off sooner — but they work differently.

Calculate now: Compare your numbers with the Home Loan Repayment Calculator.

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The short answer (most people)

• Choose offset if you want flexibility (easy access to your money) and you'll keep a steady balance in the account.
• Choose extra repayments if you want a set-and-forget payoff plan, you don't need quick access to the money, and your loan terms support redraw fairly.

Many households do a blend: emergency fund in offset, then extra repayments with surplus.

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How an offset account reduces interest

An offset account is linked to your home loan. The balance in the offset reduces the amount of the loan you pay interest on.

Example:

• Loan balance: $600,000
• Offset balance: $40,000
• Interest charged as if the loan balance is: $560,000

You still owe $600,000, but interest is calculated on a lower "net" amount while your cash stays available.

Learn more: Offset account explained

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How extra repayments reduce interest

Extra repayments reduce your principal faster. When principal drops, the interest charged over time drops too.

Benefits often include:

• lower total interest over the life of the loan
• shorter loan term (if you keep repayments the same)
• faster equity build

Learn more: Extra repayments guide

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Offset vs extra repayments: comparison table

Feature	Offset account	Extra repayments
Access to money	✅ Full access (like savings)	⚠️ Depends on redraw rules
Interest savings	✅ Strong if balance stays high	✅ Strong if you keep paying
Fees	⚠️ Often higher package fees	✅ Often no extra fees
Discipline	⚠️ Easy to spend if tempted	✅ Harder to touch (good)
Best for	Emergency fund + flexibility	Aggressive payoff

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Which saves more? 3 common scenarios

Scenario 1: You want a strong emergency buffer

If you might need the money (repairs, maternity leave, renovations), offset usually wins.

You still reduce interest, and you won't need to "reborrow" from redraw later.

✅ Best move: keep your emergency fund in offset and run a few repayment scenarios in the repayment calculator.

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Scenario 2: You won't touch the money and want the fastest payoff

If you're sure you won't need access to the funds, extra repayments can be the simplest.

It's also psychologically easier for some people because the money feels "locked away" from daily spending.

✅ Best move: use the extra repayments guide, then test your extra amount in the calculator.

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Scenario 3: Offset is costing you more (fees or rate)

Offsets are often bundled with:

• annual package fees, or
• a slightly higher interest rate

Ask: does my offset interest saving exceed the cost?

If your offset balance is small most of the year, the feature can be poor value.

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A simple break-even method (offset cost vs savings)

1. Estimate your average offset balance across the year
2. Multiply by your interest rate to estimate annual interest saved
3. Compare against annual package fees (or rate difference)

Rough example:

• Average offset: $20,000
• Rate: 6%
• Interest saved: ~$1,200/year
• Package fee: $395/year
• Offset likely worthwhile if you keep that balance consistently.

Tip: your average balance matters more than your peak balance.

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What about redraw?

Redraw can look like "offset-lite", but access can vary by lender and loan type.

Consider redraw carefully if:

• redraw access can be restricted
• redraw fees apply
• you're using redraw as your emergency fund

If you want emergency access, offset is usually the safer default.

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How to compare your real numbers (2 minutes)

1. Open the Home Loan Repayment Calculator
2. Enter your loan balance, rate, and term
3. Test two cases:
   • Case A: no extra repayments
   • Case B: extra repayments (e.g., +$200/week or +$500/month)
4. Decide what your spare cash needs to do:
   • if you need access → offset
   • if you want payoff speed → extra repayments

To understand repayment schedules, see Amortisation schedule explained.

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FAQs

Is offset always better than extra repayments?

No. Offset is best when you keep a consistent balance and value access. Extra repayments can win if offset costs more and you won't need the money.

Does an offset reduce the loan balance?

Not directly. It reduces interest charged, which can help you repay principal faster if your repayments stay the same.

Can I use both offset and extra repayments?

Yes. Many households keep an emergency fund in offset and still make extra repayments with surplus.

What if my offset comes with a higher interest rate?

Compare the interest saved from your average offset balance to the cost of the higher rate + fees.

Is offset "tax-free savings"?

In a sense, yes — you're avoiding interest rather than earning taxable interest in a savings account.

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Related guides

• Home Loan Repayment Calculator
• Offset account explained
• Extra repayments guide
• Amortisation schedule explained

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Important: This guide is general information only. Always check your loan's fees, interest rate and redraw/offset terms before deciding.