Offset accounts and redraw facilities both let your spare money reduce the interest on your home loan. They work differently, and the difference matters more than most people expect.
How an offset account works
An offset account is a transaction account linked to your home loan. The balance is “offset” against your loan when interest is calculated.
For example, with a $500,000 loan and $20,000 in a 100% offset account, you pay interest on $480,000. Your money stays in your own account and you can use it like any everyday account.
How redraw works
With redraw, you make extra repayments directly into the loan. That lowers the balance and the interest. If the loan allows it, you can later take those extra repayments back out.
The key differences
- Access: offset money is yours to spend at any time. Redraw is at the lender’s discretion and may have minimum amounts, fees or delays. Lenders can change or limit redraw.
- Cost: loans with an offset account often come with a higher rate or an annual package fee. Redraw is commonly included on basic loans.
- Fixed loans: many fixed rate loans don’t offer a full offset, and extra repayments may be capped.
- Tax: if the property might become an investment later, offset and redraw can be treated very differently for tax. Speak to your accountant before you decide.
Which may suit you?
An offset account may suit you if you keep a healthy savings balance, want your pay to go into the account, or want easy access to your money.
Redraw may suit you if you’d rather keep savings out of easy reach, or you’d like a simpler, lower-cost loan.
An offset only earns its keep if the interest saved is more than the extra cost of having it. We can run those numbers with you.
Not sure what your loan has?
Many people pay for features they never use. Book a free 15-minute chat and we’ll check what your current loan includes.
This article is general information only and doesn’t take your personal circumstances into account.