How Offset Mortgages Work in New Zealand
If you’ve got savings sitting in the bank while you’re paying down a mortgage, an offset account might be the missing piece in your financial strategy. It allows your savings to work harder—not by earning interest, but by reducing the interest you pay on your mortgage. The result? You could save thousands without giving up access to your money.
What Is an Offset Mortgage?
An offset mortgage allows you to link one or more everyday bank accounts to your home loan. Instead of earning interest on your savings, the money in those accounts is treated as if it’s reducing the mortgage balance. You still have access to the money whenever you like, but the bank only charges you interest on the net balance between your loan and the linked savings.
For example, if your mortgage is $400,000 and you have $50,000 in linked offset accounts, the bank will only charge interest on $350,000.
Key Features and Benefits
The main attraction of an offset mortgage is flexibility. You don’t have to sacrifice liquidity (access to your savings) to save on mortgage interest. That means:
No tax on interest income (because you're not earning interest)
Instant access to savings for emergencies, holidays, or big purchases
No need to lock funds into term deposits
And if you’re the kind of person who prefers to bucket savings into different accounts—one for travel, one for emergencies, one for school fees—offsets still work. All those accounts can be linked to your mortgage and still reduce the balance you're charged interest on.
Offset Accounts vs Fixed Rates
Offset accounts sit under a floating interest rate, which is usually higher than fixed-term rates. That’s why you typically don’t want to allocate your entire mortgage to offset. Instead, the ideal amount to offset is equal to (or just below) the amount of savings you expect to have regularly available.
So, if you have $80,000 in savings across a few accounts, you might set $80,000 of your mortgage as offset debt, while fixing the remainder at a lower rate. Your mortgage adviser can help you structure this in the most efficient way.
Helping a Family Member with Offset Accounts
Offset accounts don’t need to be in your name to work. In fact, they’re often used by parents who want to help their children with a mortgage but don’t want to hand over a lump sum.
The parent can link one or more of their savings accounts to their child’s mortgage. The funds remain in the parent’s name and under their control, but still reduce the interest the child pays. It’s a smart alternative to gifting money—especially for parents approaching retirement who want to keep their safety net intact.
Here’s a quick comparison:
Term deposit: $100,000 might earn $1,000 per year in interest
Offset account: the same $100,000 could reduce a mortgage interest bill by $4,000 per year*
It’s a high-impact, low-risk way to offer support.
*Figures are indicative and depend on interest rates at the time.
When Should You Consider an Offset Account?
Because you can’t change fixed-rate debt to offset without paying break costs, the best time to consider offsetting is either:
When you’re structuring a new mortgage, or
When you're coming up to a refix
At these points, you can choose what portion of your loan to allocate to offset and what to fix.
Can You Offset an Investment Property Loan?
Yes—but with a big caveat. While offsetting still works for investment lending, it can affect the tax deductibility of interest payments. That’s why most accountants recommend offsetting against your personal mortgage, not your investment property. Always get tax advice before using an offset account on a rental.
When Offset Mortgages Might Not Be Ideal
Offset accounts aren’t a fit for everyone. You might want to avoid offsetting if:
You tend to spend what you save (the higher floating interest rate won’t be worth it)
You prefer the discipline of locking money away, such as in a term deposit
You don’t maintain consistent savings levels over time
If you’re unlikely to keep funds in your offset account regularly, a fixed-term mortgage may save you more in the long run.
Offset Smarter, Not Harder
Offset mortgages are one of the most underused tools in the home loan toolkit. When used well, they offer flexibility, accessibility, and meaningful savings—particularly for those with regular savings, generous parents, or a disciplined budgeting style.
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