Most households pay their home loan off slowly because their money leaves the account the day it arrives. An offset account, an investment property and a tax variation change when the money moves, not how much of it there is. Here is exactly what that is worth on a $700,000 home loan, with every number shown.
An offset account is charged interest daily on your loan balance minus whatever is sitting in the offset. So the question is not how much you earn. It is how many days each dollar sits in that account before it leaves.
Average balance held across the year
Every day this sits here, it is money the bank cannot charge you interest on
The part people miss. None of these four streams is new money. Your income is the same, the rent is the same, the tax bill for the year is identical. All that changes is how long each dollar sits in the offset before it goes back out. That is why this works for people who are not high income earners, and why it stops working the moment the discipline stops.
A couple earning $120,000 and $60,000. They owe $700,000 on the home. They buy a $700,000 investment property renting at $650 a week, funded by releasing equity from the home for the deposit and costs. All figures use FY2026-27 resident tax rates and include the Medicare levy.
| Loan | Purpose | Amount | Rate | Deductible |
|---|---|---|---|---|
| Home loan | Owner occupied | $700,000 | 5.89% P&I | No |
| Equity split | Deposit plus purchase costs | $175,000 | 5.89% | Yes |
| Investment loan | 80% of the purchase price | $560,000 | 6.29% interest only | Yes |
The equity split is a separate account, never mixed with the home loan. Keeping deductible and non deductible borrowings apart is the single most important structural decision on this page.
| Item | Weekly | Fortnightly | Monthly | Annual |
|---|---|---|---|---|
| Rent received | $650 | $1,300 | $2,817 | $33,800 |
| Deductible interest | $876 | $1,751 | $3,794 | $45,532 |
| Rates, insurance, management, upkeep | $154 | $308 | $667 | $8,000 |
| Cash shortfall before tax | $380 | $759 | $1,644 | $19,732 |
| Depreciation claimed, no cash out | $250 | $500 | $1,083 | $13,000 |
| Taxable loss | $630 | $1,259 | $2,728 | $32,732 |
| Tax back at 32%, held by the $120,000 earner | $201 | $403 | $873 | $10,474 |
| Real cost of holding the property | $178 | $356 | $771 | $9,257 |
Read that last line before anything else. The property costs $178 a week to hold. It does not fund the home loan, and any advertisement telling you it does is selling you something. What it does is put a $735,000 appreciating asset in your name, largely funded by a tenant and the tax system, for the price of a weekly restaurant meal.
Left alone, that $10,474 of tax arrives as a refund some time after 30 June. It might be fourteen months after the first dollar of the loss was incurred. For all of those months the money is with the ATO, doing nothing for you.
A PAYG withholding variation tells your employer to withhold less each pay, because your accountant has told the ATO you are running a rental loss. The total tax you pay across the year does not change by a cent. It simply arrives while you can still use it.
Your accountant lodges the form, and it has to be redone each financial year. If your circumstances change mid year and you end up under withheld, you will owe the difference at tax time, which is exactly why it is their job and not a form to guess at.
Extra in every fortnightly pay, instead of a lump sum after 30 June
Average extra balance this alone keeps in the offset across the year
Three paths on the same $700,000 loan, at the same 5.89%, for the same household. The only thing that changes is where the money sits between arriving and being spent.
This is the part that gets left off most versions of this page, and it is the part your accountant will ask about first. The eleven years break into two very different halves.
This household has about $10,433 a year left after living costs, repayments and the cost of holding the property. Sending it to the offset instead of letting it drift is what does most of the work. No structure can create this. It has to exist.
The card float, the rent parking, the salary sitting still and the tax variation. Worth $42,796 in interest without repaying one extra dollar. Smaller than the headline, and free.
Salary $5,894. Credit card float $8,000. Tax variation $5,237. Rent in transit $1,408. Each is a twelve month average, rounded to the nearest dollar, so the four add to $20,539 against an unrounded total of $20,540. At 5.89% that is roughly $1,210 of interest avoided every year, compounding.
Two things this example does not hide.
Releasing $175,000 of equity means the home now secures $875,000 of debt, not $700,000. The chart tracks the $700,000 that is not deductible, because that is the debt worth killing. The other $175,000 is deductible and is deliberately left alone.
The investment loan is interest only. It does not reduce. That is the point during the accumulation years, but it means a rate rise flows straight into cash flow with nothing cushioning it. Model this at two to three percent higher before you commit to it.
Day to day spending goes on an interest free card. The card is paid in full from the offset on the due date, never before, never partially. Because roughly $6,000 of monthly expenses sits in the offset for an extra 30 to 55 days, it is worth about $8,000 of average balance, the single largest of the four streams.
It is also the one that can go badly wrong. Card interest sits around 20 percent. One month of carried balance costs more than the float earns in a year, and a habit of carrying a balance would undo the whole strategy several times over.
Only run this if all three are true.
The card is on direct debit for the full closing balance. The offset never drops below the card balance. Nobody in the household treats the limit as available money. If any one of those is shaky, drop this step and run the other three. You still get most of the benefit.
Nick walks through the same numbers on screen, including the two places this strategy most often gets set up incorrectly.
Two minutes forty. Narrated walkthrough of the same figures shown above, including what the property actually costs to hold and where the saving really comes from.
The example on this page is one couple, one income split, one set of rates. Change the income split, the living costs or the rate and the answer moves by years. MTracka runs the same model on your figures in about ten minutes, with the current brackets, the Medicare levy and the low income tax offset applied.