Redraw vs Offset
A Simple Guide for Australian Home Loans

If you’re comparing redraw vs offset on an Australian home loan, both features can cut interest and help you pay the loan off faster. They do this in slightly different ways:

• Offset account – a separate transaction/savings account linked to your home loan. The balance offsets your loan, so you only pay interest on the loan minus the offset balance.

• Redraw facility – lets you redraw extra repayments you’ve made on your home loan. Those extra funds sit inside the loan, lowering your interest until you pull them back out.

In short:

• Owner-occupiers who want discipline and low fees often lean to redraw.

• Investors, or anyone who might turn their home into an investment later often prefer an offset account for flexibility and better tax treatment.

Let’s break down offset vs redraw in more detail so you can choose the right setup for your situation.

What is a redraw facility?

A redraw facility is a feature of many variable rate home loans that lets you:

• Pay extra off your loan above the minimum repayment

• Access those extra repayments later if you need them

When you tip extra money into your loan:

• Your loan balance goes down

• Interest is calculated on the lower balance

• Over time, this can save a lot in interest and shorten your loan term.

However, those extra funds sit inside the loan, which means:

• You may need to transfer money out via internet banking or request redraw through your lender

• Some lenders set minimum redraw amounts or charge redraw fees

• On many loans, your available redraw gradually reduces as your scheduled repayments catch up over time

Pros of home loan redraw

• Often attached to no-frills variable loans with lower interest rates than full-feature offset packages

• Encourages good behaviour – money is less “visible” and harder to splurge

• Still gives you access to extra funds for renovations, emergencies or big expenses

Cons of redraw

• Less immediate access – you typically can’t use a debit card linked directly to redraw

• Lenders can change redraw rules, limits or processing times

• Tax implications if you redraw for personal spending on an investment loan (more on that below)

What is an offset account?

An offset account is a normal everyday bank or savings account that’s linked to your home loan. You can have your salary paid into it, pay bills, use a debit card – all the usual things.

The difference is how interest is calculated:

• The bank calculates interest on loan balance minus offset balance

• for example, If you owe $500,000 and keep $40,000 in a 100% offset account, you only pay interest on $460,000

Because interest is usually calculated daily and charged monthly, keeping cash in your offset can save a surprising amount over the life of the loan.

Pros of an offset account

• Full everyday access – use your card, transfers, BPAY etc.

• Great for people who keep a reasonable ongoing savings balance

• For many investment strategies, an offset is more tax-friendly than redraw, because you’re not changing the actual loan balance.

Cons of offset

• Home loans with offsets can have higher interest rates and/or package fees than basic loans

• Easy access can be a temptation to overspend

• Not every lender offers 100% offset or multiple offset accounts

redraw vs offset: key similarities

When comparing offset account vs redraw, it helps to start with what they have in common:

• Both can reduce interest and help you pay your home loan off sooner

• Both rely on you having spare cash (savings or extra repayments)

• Both are typically available on variable rate loans, sometimes on selected fixed loans

So for pure interest savings, redraw vs an offset account is very similar, a dollar in redraw usually saves about the same interest as a dollar in offset, assuming fees and rates are the same.

Offset vs redraw: the big differences

Here’s where home loan redraw vs offset really diverge.

1. Access to your money

• Offset account

  • Functions like a normal account – tap your card, transfer money, withdraw at an ATM.

  • Great for everyday cash flow and “all money in one place” budgeting.

• Redraw facility

  • Extra repayments sit inside the home loan.

  • You usually need to log in and transfer money out (and may face limits or fees).

  • Adds a useful “speed bump” before you spend, which can help some people save.

2. Fees and interest rates

• Loans with redraw only are often cheaper: lower interest rates, fewer ongoing fees.

• Loans with full offset packages may charge:

  • Annual package fees

  • Slightly higher interest rates

  • Extra fees for multiple offset accounts

The trade-off is: cost vs flexibility.

3. Tax and future investment plans

This is crucial if:

• You already have an investment property, or

• You think your home might become an investment later (for example, you’ll rent it out when you upgrade).

Broadly (always check with your tax adviser):

• With offset, your loan balance stays the same; you’re just reducing interest by parking money beside the loan. If you later turn the property into an investment, the full loan balance may remain tax-deductible, regardless of how much you’ve moved in and out of the offset account.

• With redraw, every time you pull money out for a non-investment purpose (car, holiday, school fees), the tax deductibility of that portion of the loan can be compromised if the property becomes or is already an investment.

That’s why many lenders and advisers suggest offset is often better for investors, while redraw can suit owner-occupiers who don’t expect to claim interest as a tax deduction.

Redraw vs offset for different types of borrowers

Owner-occupiers

If you:

• Live in the property

• Are not claiming tax deductions on your home loan

• Want to pay your loan down faster and don’t need instant access to every dollar

…then a home loan redraw vs offset comparison often comes down to cost and discipline.

Redraw can be ideal if:

• You want a lower-rate basic variable loan

• You’re happy to keep most spare cash as extra repayments

• You like that it’s slightly harder to withdraw the money, so you’re less tempted to spend it

An offset may still be worth paying for if you:

• Keep high ongoing savings balances

• Value having all your cash in one everyday account

• Want future flexibility in case you later convert your home to an investment property

Investors and future investors

For investors, offset vs redraw isn’t just about convenience – it’s about tax strategy.

Offset accounts are often preferred because:

• They don’t change the legal loan balance

• Moving money in and out of offset typically doesn’t affect the tax-deductible portion of interest (subject to ATO rules and advice)

If you:

• Already own an investment property; or

• Plan to keep your current home as an investment when you upgrade

…then an offset account vs redraw discussion with a broker and your accountant is essential before you decide.

How to choose: quick decision checklist

Use this as a simple guide when weighing up redraw vs offset account:

1. Do you hold a decent savings balance most of the time?

   • Yes → An offset account can work hard for you every day.

   • No → A basic loan with redraw may be cheaper and just as effective.

2. Do you need instant access to your money via a card?

   • Yes → Lean towards offset.

   • No → Redraw may be fine and can encourage better saving habits.

3. Will the property ever be used as an investment?

   • Likely → Talk to your broker and tax adviser about offset for tax effectiveness.

   • Unlikely → A redraw-only setup might save on interest and fees.

4. Are you a spender or a saver?

   • Spender → Redraw’s extra friction can protect your long-term goals.

   • Saver → Offset offers more flexibility without derailing your plans.

5. Have you compared actual products – not just features?

   • Always weigh the interest rate, fees, and flexibility of real loans – sometimes the best outcome is a loan that offers both redraw and offset so you can mix and match.

For an independent explanation of common home loan features like redraw facilities and offset accounts, see the Australian Government’s MoneySmart guide to choosing a home loan.

When to speak to a mortgage broker

Because there are many moving parts – interest rates, fees, tax, future plans – it’s smart to get advice before you lock in an offset vs redraw decision.

A good broker can:

• Compare multiple lenders offering home loan redraw vs offset

• Run side-by-side scenarios showing how much each option could save you

• Factor in your future plans – upgrading, investing, or starting a family

• Help you structure your accounts so your money is working as hard as possible

Use the contact form on this page to request a free redraw vs offset review and get a personalised comparison for your situation.