Key takeaways
- Both reduce the interest you pay by holding your spare money “against” the loan.
- An offset is your money in a bank account — spend it any time, no questions.
- Redraw is extra repayments into the loan — it’s the lender’s facility, with rules and possible restrictions.
- For future investment properties, the tax difference between them can be significant — structure early.
Every dollar sitting against your mortgage saves you interest at your home loan rate, after tax, risk-free — a better guaranteed return than most savings accounts. Offset and redraw are the two ways to do it, and they are not interchangeable.
How an offset account works
An offset is a transaction account linked to your loan. If you owe $500,000 and hold $40,000 in offset, you’re charged interest on $460,000. The money stays yours — salary in, groceries out, instant access — while every dollar parked there works against the loan. Full offsets are standard on many variable loans, sometimes for a package fee; fixed loans often allow no or partial offset.
How redraw works
Redraw is the ability to take back extra repayments you’ve made above the minimum. Same interest effect while the money sits there — but the money has legally gone into the loan. Getting it back is a facility the lender provides, with minimums, processing times, and terms the lender can change. In stressed times some lenders have reduced redraw availability; it’s their lever, not yours.
The practical rule: money you might need — emergency buffer, holiday fund, tax bill — belongs in offset. Money you’re genuinely committing to the loan can go to redraw. Never park your safety buffer somewhere the lender controls the exit.
The tax difference (it matters more than you’d think)
Planning to turn your home into an investment property one day? The distinction becomes serious. Cash pulled from an offset doesn’t change the loan — the full balance generally remains deductible once the property earns income. Cash pulled from redraw is new borrowing, and its deductibility depends on what you spend it on. Getting this wrong can permanently shrink your deductions. If a future investment property is even a maybe, structure with offset now and get tax advice.
Which should you choose?
- Offset — if you hold meaningful savings, want a buffer you control, or may convert the home to an investment.
- Redraw — if you just want extra repayments working and rarely need them back; often on loans with no package fee.
- Both — many variable loans offer the two together; use each for what it’s for.
One caveat: an offset only earns its (typical) package fee if you actually keep money in it. A near-empty offset on a $400/year package is a cost, not a feature — sometimes the cheaper no-frills loan with redraw genuinely wins. We’ll do that arithmetic with you.
Get the structure right before the rate
The cheapest rate with the wrong structure costs more than it saves. Book a free call and we’ll match offset, redraw and loan setup to how you actually save and what’s next for you.
Book your free game plan callFrequently asked questions
Is money in an offset account as safe as a savings account?
It’s a deposit account with the lender and remains your money, accessible any time. And unlike savings-account interest, the benefit — interest you don’t pay — isn’t taxable income.
Do offset accounts cost more?
Often they come with a package or account fee, or a slightly higher rate than a bare-bones loan. Whether that’s worth it depends on your average offset balance — there’s a break-even point we can calculate for you in minutes.
Can I have an offset on a fixed rate loan?
Frequently no, or only a partial offset — it varies by lender. A common structure is a split loan: fixed portion for certainty, variable portion with the offset attached.
This guide is general information only and does not take your personal circumstances into account. It is not financial or credit advice. Government schemes, lender policies and rates change over time and eligibility criteria apply. Speak with us for advice tailored to your situation.