Offset Account vs Redraw: What's the Difference?
An offset account and a redraw facility can both help reduce the interest charged on a home loan, but they work in different ways.
An offset account is a separate transaction account linked to your home loan. A redraw facility allows you to access additional repayments you have made directly into the loan.
Although the interest-saving effect can appear similar, the differences in how your money is held, accessed and managed may influence which option is more suitable for your circumstances.
Understanding the difference between an offset account and redraw can help you choose a home loan structure that supports both your current finances and your longer-term property goals.
What Is an Offset Account?
An offset account is a transaction account linked to an eligible home loan.
The balance held in the account is used to reduce the portion of the home loan balance on which interest is calculated.
For example, if you have:
A home loan balance of $500,000
An offset account balance of $30,000
The lender may calculate interest on $470,000 rather than the full $500,000 loan balance.
Your home loan balance remains $500,000, but the money held in the offset account reduces the amount used to calculate interest.
An offset account can generally be used similarly to an everyday transaction account. Depending on the account and lender, you may be able to:
Have your salary deposited into the account
Make everyday purchases
Pay bills and direct debits
Transfer money through online banking
Use a debit card
Hold savings or an emergency fund
The more money you keep in the offset account, and the longer it remains there, the greater the potential interest-saving benefit.
A mortgage offset account may be a 100% offset account, where the full account balance is offset against the home loan, or a partial offset account, where only a portion of the balance is used. The exact arrangement will depend on the lender and loan product.
What Is a Redraw Facility?
A redraw facility allows you to access some or all of the additional repayments you have made above the minimum required repayments on your home loan.
For example, if your required repayment is $2,800 per month but you regularly pay $3,200, the additional $400 may contribute towards your available redraw balance.
Because the extra money has been paid directly into the home loan, it reduces the outstanding loan balance and may reduce the amount of interest charged.
You may then be able to withdraw, or redraw, those additional repayments if you need to access the money later.
However, access to redraw is subject to the lender’s terms and the features of the particular loan. A lender may apply:
Minimum or maximum redraw amounts
Redraw fees
Daily transaction limits
Processing times
Restrictions on particular loan types
Limits during a fixed-rate period
Requirements for the loan to remain ahead of its repayment schedule
The amount displayed as your redraw balance may not always be immediately available. How and when the funds can be accessed will depend on the lender’s policies and your loan terms.
Offset Account vs Redraw: Key Differences
Feature | Offset Account | Redraw Facility |
How it works | Money is held in a separate account linked to the home loan | Extra money is paid directly into the home loan |
Interest calculation | The account balance reduces the loan amount used to calculate interest | Extra repayments reduce the outstanding home loan balance |
Access to money | Usually accessible through everyday banking, subject to the account terms | Access depends on the lender’s redraw rules and loan terms |
Everyday transactions | May support salary deposits, debit card purchases, transfers and direct debits | Generally not designed as an everyday transaction account |
Fees | The loan or account may have package or ongoing fees | Redraw fees or transaction restrictions may apply |
Availability | Usually offered with selected home loan products | Commonly available on eligible variable-rate loans |
Fixed-rate loans | May not be available or may only apply to the variable portion of a split loan | Extra repayment and redraw access may be limited |
Effect of withdrawing money | Reduces the offset balance, increasing the amount on which interest is calculated | Increases the outstanding loan balance and the amount on which interest is calculated |
Tax considerations | Withdrawing money generally does not change the original loan balance | Redrawing may be treated as new borrowing, with the use of the funds potentially affecting tax treatment |
The exact features, fees and access arrangements vary between lenders and loan products.
How Does an Offset Account Reduce Interest?
Home loan interest is generally calculated regularly based on the applicable loan balance.
When money is held in an eligible offset account, the lender deducts the offset balance from the home loan balance before calculating interest.
Using the previous example:
Home loan balance: $500,000
Offset account balance: $30,000
Amount used to calculate interest: $470,000
You are not earning interest on the $30,000 in the offset account. Instead, the balance may reduce the interest charged on your home loan.
If you withdraw $10,000 from the offset account, the offset balance would fall to $20,000. Interest would then be calculated on $480,000 rather than $470,000, assuming the loan and account balances otherwise remained unchanged.
The effectiveness of an offset account will therefore depend on factors including:
Your average offset account balance
The home loan interest rate
Any additional fees associated with the loan
Whether the account provides a full or partial offset
How frequently you withdraw money
How long you expect to hold the loan
If you are likely to maintain only a small balance, the interest saved may not outweigh the fees or higher interest rate associated with an offset loan.
How Does Redraw Reduce Interest?
When you make additional repayments directly into your home loan, the outstanding loan balance is reduced.
For example:
Original home loan balance: $500,000
Additional repayments made: $30,000
Reduced loan balance: $470,000
Interest may then be calculated on the reduced balance of $470,000.
If you later redraw $10,000, your home loan balance would increase to approximately $480,000. This would increase the balance on which interest is calculated and may increase the total interest paid or the time required to repay the loan.
Depending on the lender and loan structure, redrawing money may also affect your required repayments.
Making additional repayments does not necessarily mean the lender will permanently reduce your scheduled minimum repayment. Instead, continuing to make the existing repayment amount while maintaining a lower balance may help you repay the loan sooner.
Which Option Provides Easier Access to Money?
An offset account will generally provide more convenient access because it operates as a separate bank account.
You may be able to access the money through:
A debit card
Electronic transfers
BPAY
Direct debits
ATM withdrawals
Online or mobile banking
This can make an offset account useful for managing salary, household expenses, savings and emergency funds.
Redraw access may also be available through online banking, but the lender can apply rules about when and how much can be withdrawn.
For example, there may be:
A minimum redraw amount
A daily withdrawal limit
A delay before recent payments become available
Restrictions while the loan is in arrears
Limited redraw during a fixed-rate period
A redraw facility may therefore be more suitable for money that you do not expect to access regularly, while an offset account may provide greater everyday flexibility.
Do Offset Accounts Cost More?
Some home loans with offset accounts may have:
A higher interest rate
An annual package fee
Monthly account fees
Additional transaction fees
These costs vary between lenders.
An offset account is not automatically beneficial simply because it is available. The potential interest saving should be compared with the interest rate and fees attached to the loan.
For example, an offset feature may offer limited value where:
You expect to keep only a small amount in the account
The loan has a materially higher interest rate
The annual fee exceeds the expected interest saving
You regularly withdraw most of the account balance
A mortgage broker can compare the estimated cost of an offset loan with alternative home loan options to help determine whether the feature is likely to provide value based on your expected account balance.
Are Redraw Facilities Free?
Some lenders offer fee-free electronic redraw, while others may charge a fee or place limits on the number or value of redraw transactions.
A loan without an annual package fee may appear less expensive than an offset loan, but the overall cost should still be considered.
Important matters to check include:
Whether redraw is available on the loan
Whether there is a minimum redraw amount
Whether electronic redraw is free
How quickly the funds can be accessed
Whether the lender can restrict access
What happens to redraw when refinancing or fixing the loan
Whether available redraw reduces over the remaining loan term
How redrawing may affect repayments and total interest
The loan’s interest rate, fees and repayment flexibility should be considered together rather than assessing the redraw feature in isolation.
Can You Have Both an Offset Account and Redraw?
Some home loans provide both an offset account and a redraw facility.
This may allow you to:
Keep everyday funds and savings in an offset account
Make additional repayments directly into the home loan
Access eligible extra repayments through redraw where required
However, having both features does not mean both need to be used.
Before placing additional money into the loan, consider whether you may need convenient access to it later and whether there may be tax or financial implications.
Once money has been paid into the loan, access will be governed by the lender’s redraw terms rather than the transaction features of an offset account.
Offset and Redraw on Fixed-Rate Loans
Offset accounts and redraw facilities are more commonly associated with variable-rate home loans.
Fixed-rate loans may:
Not offer an offset account
Offer only a partial offset
Limit additional repayments
Restrict access to redraw
Charge break costs when additional repayment limits are exceeded
A split home loan may provide an alternative arrangement. This involves dividing the loan into fixed and variable portions.
Depending on the product, an offset account may be linked to the variable portion, while the fixed portion provides greater repayment certainty for the agreed fixed term.
The suitability of a split loan will depend on your circumstances, preferred features and ability to manage potential rate changes.
What Are the Tax Considerations?
The tax treatment of offset accounts and redraw facilities can differ, particularly where a property is currently used, or may later be used, to produce income.
With a redraw facility, money withdrawn from the home loan may be treated as a new borrowing. The purpose for which the redrawn funds are used can affect whether interest relating to that portion of the loan may be deductible.
For example, redrawing money for private expenses may result in a loan containing both private and income-producing debt. This can make the calculation and record-keeping requirements more complex.
An offset account is separate from the home loan. Withdrawing money from the offset account does not itself increase or redraw the original loan balance.
Tax deductibility depends on individual circumstances and the use of borrowed funds. Borrowers should obtain advice from a registered tax agent or suitably qualified tax professional before relying on a particular loan structure for a tax outcome.
Is an Offset Account or Redraw Better?
Neither feature is automatically better for every borrower.
An offset account may be worth considering if you:
Want convenient access to your money
Plan to deposit your salary into the account
Maintain a consistent savings balance
Use the account for everyday transactions
Want to retain flexibility for future property plans
Expect the interest savings to outweigh any additional fees
A redraw facility may be worth considering if you:
Want to make additional repayments directly into your loan
Do not expect to access the money frequently
Prefer a loan with fewer features or potentially lower fees
Are comfortable with the lender’s redraw access rules
Want to reduce the temptation to spend available savings
The most appropriate option will depend on your expected savings, spending habits, loan purpose, future property plans and the cost of the loan.
Questions to Ask Before Choosing
Before selecting a home loan with an offset account or redraw facility, consider asking:
Is the offset account a full or partial offset?
Is there a limit on the amount that can be offset?
What annual, monthly or package fees apply?
Is the interest rate higher than comparable loans without an offset?
How much would I need to keep in the offset account for the feature to be worthwhile?
Is redraw available on this loan?
Are there redraw fees, minimum amounts or transaction limits?
How quickly can I access redraw funds?
Can the lender reduce or restrict my available redraw?
What happens to my offset or redraw if I fix or refinance the loan?
Could withdrawing money affect my required repayments?
Are there tax considerations based on my future property plans?
Speak With Homefront Mortgages
Choosing between an offset account and redraw involves more than comparing home loan features.
Homefront Mortgages can help you understand how each option works, compare suitable loans available through our lender panel and assess the interest rates, fees, features and restrictions that may apply.
We can also help you consider how a proposed loan structure may align with your savings habits, repayment strategy and future property goals.
We do not represent every lender or loan available in the market. The final decision to approve a loan, including the interest rate, loan amount, features and conditions offered, is made by the lender.
Important Information
This article provides general information only and does not constitute personal financial, tax or legal advice. It does not take into account your objectives, financial situation or individual needs.
Before acting on this information, consider your circumstances and obtain appropriate professional advice, including tax advice where relevant.
Loan approval is subject to lender assessment, eligibility requirements, satisfactory documentation and applicable lending criteria. Loan features, access arrangements, interest rates, fees, terms and conditions vary between lenders and may change. Fees and charges may apply.
