Applies to: Australia
A home loan and an investment loan, both with offsets, and one amount to divide each month. The higher rate is not the answer, because home loan interest is not deductible and investment loan interest is. This works the months and compares the after-tax cost of every split from nothing to everything.
| Taxable income | Tax on this income | Marginal |
|---|---|---|
| $0 – $18,200 | Nil | 0% |
| $18,201 – $45,000 | 15c per $1 over $18,200 | 15% |
| $45,001 – $135,000 | $4,020 plus 30c per $1 over $45,000 | 30% |
| $135,001 – $190,000 | $31,020 plus 37c per $1 over $135,000 | 37% |
| $190,001 and above | $51,370 plus 45c per $1 over $190,000 | 45% |
Interest on a loan over your own home is not deductible. Interest on a loan over a rental property generally is. So the two loans do not cost what their rates say they cost, and a dollar put against one does not save what a dollar put against the other saves.
A dollar of interest avoided on the home loan is a dollar you keep. A dollar of interest avoided on the investment loan is a dollar you no longer deduct, so at a 37% marginal rate you keep 63 cents of it. The comparison that decides the answer is the home rate against the investment rate multiplied by one minus your marginal rate, and it is shown on the page above with your own figures in it.
That is why a 6% home loan can beat a 7% investment loan. It is not that 6 is bigger than 7; it is that the 7 is not really 7 once the deduction is accounted for.
Only in two of the three regimes. The Treasury Laws Amendment (Tax Reform No. 1) Act 2026 quarantines residential rental losses from the 2027-28 income year for property acquired after contract date, 7:30pm ACT legal time on 12 May 2026, unless the dwelling is a new residential dwelling. Where a loss is quarantined it can only be set against residential rental income, not against salary, and it carries forward.
If your property is in that regime and already loss-making, further interest does nothing for your salary tax this year, so this page treats the investment rate as undeductible rather than discounted. That is a deliberately blunt reading: whether a particular property is loss-making, what has already carried forward, and what may be recovered against rental income later are not modelled here. The negative gearing calculator works through the regimes properly, and the Act itself is the source.
These are two different events, they free different amounts of money, and the second is much the larger of the two.
An offset reduces the balance interest is charged on. Once it holds as much as the loan, there is nothing left to reduce, and every further dollar sitting in it earns exactly nothing.
So this model redirects. When one offset covers its loan, that offset's share of the monthly amount goes to the other one for the rest of the term. You still set one number. Nobody keeps feeding a full offset in real life, and a model that pretended otherwise would make some splits look worse than anyone would ever let them get.
What is already sitting in that offset moves too, not just the share arriving each month. The balance keeps falling underneath it, so leaving the accumulated amount there would strand it.
Your repayment is not freed by this. It still leaves your account every month. What changes is that all of it is now principal rather than interest, so none of it is being wasted.
This is the bigger event. The balance reaches zero and the repayment itself stops. A contracted repayment is usually several times what anyone has spare each month, so from that month the amount being divided is a great deal larger than the number you typed in.
This page adds it back to the monthly amount and keeps dividing at the same share. In practice all of it goes to the surviving loan, because the repaid one's offset has no room left in it. The results above are computed that way for every one of the 101 splits.
It is worth being clear about why that matters, because it is not a rounding detail. A version of this page that dropped the freed repayment instead of redirecting it would model a household that stops paying a loan and then spends the money on nothing for twenty years. It would report a higher cost for every split, and on some sets of figures it would name a different split as the lowest.
If both offsets are already full by the time a loan clears, the interest on both is already zero and the freed repayment has nothing left to work against. The money after that point is shown as accumulating cash, because that is what it is. It is not working against either loan and the page does not present it as though it were.
Deliberately, so the answer above means what it says:
The assumptions behind every figure above: rates held constant for the whole term, contracted repayments unchanged until the loan they belong to is repaid, no additional lump sums, no fees, and both offsets earning nothing beyond the interest they save. A repayment that stops because its loan has cleared is added to the amount being divided, on the reasoning set out above.