Have money saved for a rainy day? Those savings could help you pay less interest on your home loan, while still being there when you need them.
That is how an offset mortgage works. Also called an offset home loan, it can help you make better use of your savings and pay off your mortgage sooner.
But is it right for you? Here is how it works.
What is an offset mortgage?
An offset mortgage uses money in your bank accounts to reduce the interest charged on your home loan.
Your savings and mortgage stay separate. The bank simply subtracts your savings from your loan balance before working out the interest.
For example:
| Amount | |
|---|---|
| Your offset home loan | $100,000 |
| Savings in linked accounts | $30,000 |
| Amount you pay interest on | $70,000 |
You still owe $100,000, but the bank only charges interest on $70,000 while those balances stay the same.
“Linked accounts” are simply the bank accounts connected to your offset home loan. Westpac explains the setup here.
Can you still use your savings?
Yes. Your savings remain available for emergencies, car repairs or other expenses.
But spending them reduces the benefit.
In the example above, withdrawing $10,000 leaves you with $20,000 in savings. You would then pay interest on $80,000 of your loan.
Put more money into your linked accounts, and the amount attracting interest goes down again.
How much interest could you save?
Keeping $30,000 in linked accounts for a full year at a constant 6% mortgage rate could save about $1,800 in interest that year.
That compares with the same loan at the same rate without offsetting.
Your actual savings depend on your daily account balances and interest rate. You should also compare offsetting with other mortgage options, including fixed rates, to see which costs less overall.
How many years could offsetting take off your mortgage?
Let’s use the same $100,000 loan and $30,000 in savings.
Assume you have 30 years left, your interest rate stays at 6%, and you keep paying about $600 a month.
| Without offsetting | With $30,000 offsetting | |
|---|---|---|
| Time to repay the loan | 30 years | About 18 years and 10 months |
| Total interest paid | About $116,000 | About $35,000 |
That could mean paying off this loan more than 11 years sooner and saving around $80,000 in interest.
Because less money goes towards interest, more of each repayment pays back what you borrowed. Your $30,000 stays in your linked accounts throughout this example.
Estimates assume monthly repayments of $599.55, a constant 6% rate, $30,000 kept in linked accounts until the loan is repaid, and no fees. Actual results depend on daily balances, rates and lender calculations. If this loan is part of a larger mortgage, the time saved applies to this portion.
Will your regular repayments go down?
Offsetting does not automatically lower your repayments. It can help you clear your debt faster instead.
Think of each repayment as two buckets. One pays interest, and the other pays back what you borrowed. Offsetting leaves more money for the second bucket when your repayment stays the same. BNZ explains this in its TotalMoney guide.
What are the drawbacks?
Your rate can change. Offset home loans generally use a floating rate, which the bank can move up or down.
Your savings matter. The less money you keep in linked accounts, the less interest you avoid.
Linked accounts generally do not earn interest. Compare the mortgage interest saved with what your savings could earn elsewhere after tax. See Westpac’s account details.
A fixed loan could cost less. If the offset rate is higher than an available fixed rate, you need enough savings to make up for that extra cost.
Do you have to offset your whole mortgage?
No. You can consider offsetting one part and fixing the rest.
For example, if you have a $600,000 mortgage and $40,000 in savings you expect to keep, you could explore:
A $40,000 offset loan linked to your savings.
A $560,000 fixed loan.
While your savings fully cover the $40,000 offset loan, no interest would be charged on that part. Required repayments would still continue.
Spending some of those savings would mean paying interest on the difference. Kiwibank explains how offset and fixed loans can work together.
Is an offset mortgage right for you?
It could suit you if you keep an emergency fund, regularly have money left after bills, or want savings available for future expenses.
It may be less useful if you have little savings or expect to spend them soon.
Look at your bank balances over several months. How much do you normally keep after bills? What large expenses are coming up? Those answers can help you choose a sensible offset amount.
Could your savings work harder?
At Vesta, we can compare your options and explain the numbers in plain English.
Get in touch to review your mortgage, or explore our other ways to save on your home loan.
Frequently Asked Questions about Offset Mortgages in NZ
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Examples include BNZ TotalMoney, Kiwibank’s Offset Home Loan and Westpac Choices Floating with Offset. Account rules differ between banks.
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No. Your savings stay separate and reduce the interest charged. Paying money directly into your mortgage is different and may affect whether you can access it again.
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No interest is charged while eligible savings fully cover that loan. You still owe the money and must continue required repayments.
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Some banks allow this. BNZ, for example, lets eligible parents’ accounts connect to a TotalMoney loan. Discuss what happens if their savings are withdrawn. See BNZ’s family option.
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No. Offsetting keeps savings and lending separate. Revolving credit works more like a large overdraft: money paid in reduces your debt, and you can borrow again up to an agreed limit. Westpac’s guide explains both options.
About Vesta Finance & Advisory
Vesta Finance & Advisory is an independent financial advisory firm based in Hawke's Bay, helping clients throughout New Zealand with residential lending, business lending, property investment finance, KiwiSaver advice and long-term wealth planning. We work with professionals, business owners, property investors and families to create lending strategies that support their financial goals—not just today, but for years to come.
Disclaimer : This article is for general information and educational purposes only. It does not constitute personalised financial advice. Private Banking eligibility, lending criteria and available services vary between banks and depend on your individual circumstances. Before making any financial decisions, we recommend seeking personalised advice from a qualified financial adviser.
Posted October 2026