Loan types
Offset mortgages — savings that count twice
An offset mortgage links a savings account to your home loan. Instead of earning interest on your savings (and paying tax on it), your savings reduce the mortgage balance that interest is calculated on. Same money, smarter structure.
How it works
Say your mortgage is $500,000 and you have $40,000 in your offset savings account. The bank calculates your interest on $460,000 instead of $500,000. You still owe $500,000 — you haven't repaid anything — but you're only paying interest on the net figure.
Your savings stay liquid. You can withdraw them any time. The moment you do, your mortgage interest goes back up to the full balance.
The tax angle is the clever bit: in New Zealand, interest earned on savings is taxable income. But a "reduction in interest paid" isn't taxed. So an offset effectively gives you a tax-free return on your savings equal to your mortgage rate.
Who it suits
- —People with significant savings they want to keep accessible (not locked away)
- —Higher-income earners whose savings interest would be taxed at 33% or 39%
- —Self-employed people who keep cash reserves for GST or tax bills
- —Anyone building savings toward their next property who wants those funds working against current debt in the meantime
Pros and cons
Pros
- Tax-efficient — you aren't taxed on the interest "saved"
- Savings stay fully accessible — withdraw any time
- Effective return equals your mortgage rate
- Great for people who need cash on hand but don't want it idle
Cons
- Only a few NZ banks offer it (Westpac and BNZ are the main ones)
- The mortgage rate is often slightly higher than a standard fixed rate
- Doesn't help much if your savings balance is small
- Less common — fewer banks means fewer options to shop around
Offset vs revolving credit
Both achieve a similar result — your cash reduces the interest you pay. The difference is structural. With revolving credit, your pay and spending flow through the loan account itself. With an offset, your savings sit in a separate account and "shadow" the loan balance.
Offset is better if you want your savings separate (psychologically or practically). Revolving credit is better if you want everything in one account. We can show you which one saves more for your specific situation.
Want to see if an offset makes sense?
We'll compare the numbers against revolving credit and standard fixed. Sometimes it saves thousands. Sometimes it doesn't. We'll be straight with you.
