Offset Account vs Redraw Facility

Offset accounts and redraw facilities are two common home loan features that may help reduce interest or improve flexibility.

They can sound similar, but they work differently.

Understanding the difference can help borrowers choose a loan structure that suits their needs.

What is an offset account?

An offset account is usually a transaction or savings account linked to your home loan.

The money in the offset account reduces the loan balance used to calculate interest.

For example, if your home loan balance is $600,000 and you have $40,000 in a 100% offset account, interest may be calculated on $560,000 instead of $600,000.

The loan balance itself has not been repaid by that $40,000. The money remains in the linked account, but it offsets the loan for interest calculation purposes.

What is a redraw facility?

A redraw facility allows you to access extra repayments you have made into your home loan.

For example, if your required repayment is $3,500 per month but you pay $4,000 per month, the extra $500 may build up as available redraw, depending on the lender's rules.

You may be able to redraw those extra funds later if needed.

Offset account example

• Loan balance: $600,000
• Offset balance: $40,000
• Interest calculated on: $560,000

The borrower still owes $600,000, but the offset balance reduces the amount used for interest calculations.

Redraw example

• Loan balance: $600,000
• Extra repayments made over time: $20,000
• Available redraw: up to $20,000, depending on lender rules

The borrower has paid extra into the loan and may be able to access those extra payments later.

Main differences

Access to money

Offset account: Money usually remains in a separate transaction account. It may be easier to access for everyday banking.

Redraw: Money is paid into the loan. Access may depend on lender rules, minimum redraw amounts, processing times or restrictions.

Loan balance

Offset account: The loan balance may remain unchanged, but interest is reduced by the offset balance.

Redraw: Extra repayments reduce the loan balance. Redrawing money may increase the effective loan balance again.

Flexibility

Offset account: Often more flexible for borrowers who want to keep savings accessible.

Redraw: Can be useful for disciplined extra repayments, but access may not be as immediate.

Fees and rates

Some loans with offset accounts may have higher fees or higher rates. Redraw facilities may be included on some loans, but rules vary.

Always compare the total loan cost, not just the feature name.

Which option may suit owner-occupiers?

An owner-occupier may value an offset account if they want to keep emergency savings accessible while reducing interest.

A redraw facility may suit borrowers who prefer to pay extra directly into the loan and are comfortable with the lender's redraw rules.

Which option may suit investors?

Investors should be especially careful before choosing between offset and redraw.

Moving money in and out of an investment loan can have tax consequences depending on how the funds are used. Investors should speak with an accountant before relying on redraw for investment or tax planning purposes.

Potential benefits of offset accounts

• Reduce interest charged
• Keep savings accessible
• Support everyday banking
• Maintain flexibility
• Separate savings from loan repayments

Potential drawbacks of offset accounts

• Higher package fees
• Higher interest rates
• Account fees
• Limited availability on some fixed loans
• The temptation to spend savings because they are easy to access

Potential benefits of redraw

• Reduce loan interest by making extra repayments
• Build a buffer inside the loan
• Encourage repayment discipline
• Allow access to extra repayments if needed

Potential drawbacks of redraw

• Withdrawal limits
• Minimum redraw amounts
• Processing delays
• Lender restrictions
• Potential tax issues for investment loans
• Less flexibility than a transaction account

Questions to ask your lender or broker

• Is the offset account 100% offset or partial offset?
• Does the loan allow multiple offset accounts?
• Are there monthly or annual fees?
• Is the interest rate higher because of the feature?
• Are extra repayments allowed?
• Are redraws instant or delayed?
• Is there a minimum redraw amount?
• Can redraw access be changed by the lender?
• Are there different rules for fixed-rate loans?
• What happens if I refinance or sell?

How to compare the value

The value of an offset or redraw feature depends on how much money you expect to keep available.

If you only expect to keep a small balance, a loan with a lower interest rate and fewer features may be better.

If you expect to keep a large savings balance, a full offset account may provide meaningful interest savings.

A simple way to compare is to test different loan amounts and repayment scenarios using the PurchaseWise Mortgage Repayment Calculator.

Common mistakes to avoid

Mistake 1: Assuming every offset is the same. Some offset accounts are full offset. Others may be partial offset. Check the details.

Mistake 2: Ignoring fees. A feature is only useful if the benefit outweighs the extra cost.

Mistake 3: Using redraw without understanding tax implications. This is especially important for investment loans.

Mistake 4: Keeping savings in a separate account that earns little interest. If the money could offset home loan interest, it may be worth comparing options.

Final thoughts

Offset accounts and redraw facilities can both be useful, but they are not the same.

An offset account may provide flexibility and easy access to savings. A redraw facility may help disciplined borrowers make extra repayments while keeping some access to those funds.

The right choice depends on the loan, the fees, the borrower's goals and how the account will be used.

Related guides

• Fixed vs Variable Home Loans
• How Interest Rate Changes Affect Repayments
• How Mortgage Repayments Are Calculated

Important disclaimer

This guide is general information only. It is not financial, credit, legal or tax advice. Investors should speak with an accountant before making decisions involving redraw, offset accounts or investment loan structures.