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Offset vs Redraw - What's the difference and which one should you use?
- Thomas Rochford
- Aug 12, 2025
- 2 min read
Updated: Aug 14, 2025
Offset accounts and redraw facilities are two common features of Australian home loans, but they serve different purposes – and knowing which one suits your needs can make a real financial difference over time.
Both options help reduce the interest you pay on your home loan, but they work in different ways and come with different levels of flexibility and access.
What is an offset account?
An offset account is a separate everyday bank account linked to your home loan. The money you keep in it is “offset” against your loan balance when interest is calculated.
Example: If you owe $500,000 and have $50,000 in your offset, you’ll only be charged interest on $450,000.
Benefits:
Works like a normal transaction account; deposit and withdraw anytime
Helps reduce interest while keeping funds accessible.
Considerations:
May come with higher loan fees or slightly higher interest rates.
What is a redraw facility?
A redraw facility lets you make extra repayments directly into your home loan, then access those funds later if needed.
Benefits:
Encourages disciplined savings — funds are tucked away in your loan
Can reduce interest over time
Considerations:
Funds aren’t instantly available like an offset account
May have redraw limits, delays, or manual transfer requirements
Key differences in practice
Feature | Offset account | Redraw facility |
Access to funds | Instant (like a bank account) | Manual transfer, maybe delays |
Best for | Day-to-day flexibility | Long-term extra repayments |
Interest savings | Yes | Yes |
Fees | May be higher | Usually lower |
Are there tax differences?
Yes — particularly for investors.
Offset accounts: Can help maintain tax deductibility if you convert your property to an investment later (seek professional tax advice).
Redraw: May mix deductible and non-deductible debt if the loan’s purpose changes.
PMG tip: Always speak to a qualified accountant for guidance on tax structuring.
Which one is better?
There’s no universal answer — it depends on your money habits and goals.
Offset: More flexible but may cost more.
Redraw: Simpler and may suit those focused on paying the loan down without needing regular access.
Some borrowers use both: Offset for salary and savings, redraw for lump-sum extra repayments.
What to check before choosing
Does your lender offer a 100% offset?
Are there account fees or minimum balance rules?
Is redraw available online or via app?
Are there restrictions on how often you can use redraw?
Final thought
Both features can save you interest and help you pay off your loan faster but they’re not the same. Choosing the right one comes down to how you manage your money and whether flexibility or simplicity matters more to you.
Perth Mortgage Group can connect you with a broker who’ll explain both options and help you compare lenders so you can make an informed choice.
