Offset vs Redraw: which feature really puts money back in your pocket?
Many home loans let you park spare cash either in an offset account or inside the loan itself via a redraw facility. Both reduce the interest you pay, but they work in very different ways—and the choice can affect tax, flexibility and even how quickly you can access your own money.
What is an offset account?
An offset is a separate transaction account that sits alongside your loan. Every dollar you keep there “offsets” the loan balance for interest-calculation purposes. Leave $30,000 in the offset and the bank charges interest as if your $600,000 mortgage were only $570,000. Because the account is separate, you can move money in or out instantly via normal banking, pay bills, or set up a salary deposit without touching the loan paperwork.
What is a redraw facility?
With redraw you make extra repayments straight into the loan. Those extra dollars push down the principal, so interest shrinks just like with an offset. The twist is access: pulling money back usually means logging in to request a transfer (and some lenders cap the amount, charge fees or take a day or two to release funds). Redraw is part of the loan contract, so the bank can change the rules or freeze access if, for example, you fall behind on repayments.
Key differences that matter
Flexibility can be a deal-breaker. Offset cash is yours to tap 24/7; redraw is slower and not always guaranteed. Fees also differ: offsets sit on “package” loans that may carry annual fees, while basic loans with redraw often have lower costs. Tax is the sleeper issue—if you ever convert your home into an investment property, money pulled from redraw may blur the line between personal and deductible debt, whereas funds taken from an offset leave the original loan balance unchanged and fully deductible.
When an offset shines
Choose an offset if you keep large or fluctuating cash balances (salary, bonuses, business income) and want friction-free access. It’s also the safer bet if there’s any chance you’ll rent the property out later and want clean tax deductibility.
When redraw is enough
If you rarely dip into your extra savings and prefer the lowest-fee loan, redraw can save just as much interest without paying for bells and whistles. Some borrowers even like the extra “speed-bump” of slower access because it stops impulse spending.
How Money Wise Lending can help
We compare loan products daily and can model the real-world savings of offset vs redraw based on how much cash you typically hold. We’ll flag hidden restrictions (like maximum free redraws per year), structure split loans so you get the best of both worlds, and make sure any future investment plans aren’t tripped up by tax traps. Book a quick chat and we’ll crunch the numbers specific to your situation.
General information only. It doesn’t take your objectives, financial situation or needs into account. Consider seeking independent advice before acting on this content.
