Offset mortgage versus revolving credit in New Zealand

Offset keeps savings accounts separate

Sorted explains that linked balances are subtracted from the offset mortgage for interest calculation while savings remain accessible. Regular mortgage repayments can continue. Product rules determine which accounts and family members can be linked.

The benefit depends on the average cash actually maintained, not a one-day peak. Compare any higher mortgage rate, package fee or account fee with realistic interest reduction.

Revolving credit behaves like a large overdraft

Income enters the facility and expenses leave it, so interest follows the daily drawn balance. There may be a reducing credit limit, but discipline is essential because available credit can be spent again. It does not behave like a standard table loan with one fixed repayment.

A household with irregular income may value flexibility, while another may prefer offset because savings remain visibly separate. Neither feature guarantees faster payoff if withdrawals offset deposits.

Compare the products using real cash flow

1. List average income timing and essential outgoings.
2. Estimate realistic low and high daily cash balances.
3. Compare rates, account fees and credit-limit rules.
4. Identify which savings accounts qualify for offset.
5. Set a principal-reduction target for revolving credit.
6. Stress-test a month with a major withdrawal.

Access and behaviour risks

Available cash can support emergencies but can also delay debt reduction. A revolving facility secured by the home deserves stricter controls than an ordinary transaction account. Offset savings can likewise disappear through spending.

• Do not count undrawn credit as emergency savings.
• Keep a budget and monitor principal trend.
• Check who owns and can access linked accounts.
• Confirm fees and interest after product changes.
• Get tax or legal advice for circumstances that depend on fund use.

Use a calculator as a scenario, not a promise

Payoff Atlas models a stable offset balance separately from principal and explicitly excludes revolving credit. Use lender-specific cash-flow tools for a balance that changes with every income and expense transaction.

The New Zealand model accrues interest across actual calendar days, using 365 days or 366 in a leap year. It supports monthly, fortnightly and weekly schedules and treats a stable offset balance separately from principal.

The estimate holds the entered rate constant, assumes extras reach principal and excludes revolving-credit cash flow. Fixed-loan limits, refix rates, break fees, posting and lender rounding can change the actual result.

Review the plan before money leaves

Compare a zero-extra case, the intended plan and an interrupted plan with identical starting inputs. For floating or split debt, rerun at other rates without presenting them as predictions. Stop the projection at a refix date when the next rate is not known.

Keep the loan agreement, latest statement and written lender answers about fixed-loan limits, break fees and payment allocation. Model each split separately when its rate, fixed expiry, offset treatment or flexibility differs.

• Secure required repayments and essential costs first.
• Keep emergency and planned-expense cash accessible.
• Name the intended loan split for an extra payment.
• Verify the transaction and principal on the next statement.
• Rerun after a refix, rate change, fee or product restructure.