Two of the most misunderstood home loan features - explained simply so you can make the right call for your situation.
When you're choosing a home loan, you'll often be asked whether you want an offset account, a redraw facility, or both. Most people pick one without fully understanding the difference - and end up either paying for a feature they don't use, or missing out on one that could save them thousands.
Both features reduce the interest you pay. But they work differently, have different tax implications (especially for investors), and suit different types of borrowers. Here's everything you need to know.
An offset account is a transaction account linked to your home loan. The balance in the offset account is offset against your loan balance when calculating interest - so you only pay interest on the difference.
At 6.00% p.a., the $50,000 in the offset account saves approximately $3,000 per year in interest.
Key features of offset accounts:
A redraw facility allows you to access extra repayments you've made on your home loan. If you've paid more than the minimum required, that surplus sits in your loan and reduces your interest - and you can redraw it when needed.
Your minimum monthly repayment is $3,000. You've been paying $3,500 per month for 2 years. You've made $12,000 in extra repayments. That $12,000 is available to redraw - and in the meantime, it's been reducing your interest charges.
Key features of redraw:
| Feature | Offset Account | Redraw Facility |
|---|---|---|
| Interest saving | Yes - on offset balance | Yes - on extra repayments |
| Accessibility | Instant (like a bank account) | Usually 1–3 business days |
| Available on fixed loans | Rarely | Sometimes |
| Monthly fee | Often yes ($10–$20/month) | Usually no |
| Tax (investors) | Interest saving not taxable | Redraw may affect deductibility |
| Lender control | Funds are yours | Lender can restrict access |
| Best for | Owner-occupiers, high cash flow | Investors, set-and-forget savers |
This is the most important section if you own or plan to own an investment property. The tax treatment of offset accounts vs redraw is fundamentally different - and getting it wrong can cost you thousands in lost deductions.
Money in an offset account is separate from the loan. The interest saving is not income - it's simply a reduction in the interest you're charged. This doesn't affect the deductibility of your investment loan interest.
When you make extra repayments on an investment loan and then redraw those funds for private use (e.g. a holiday, home renovation), the ATO may consider the redrawn amount as a new, private loan - and the interest on that portion may no longer be tax deductible. This is called "mixed purpose" borrowing and is a common trap.
Always speak with your accountant about the tax implications of your loan structure. We work closely with accountants to ensure your loan is structured correctly from day one.
Not sure which is right for you? This is exactly the kind of question we answer in a strategy call - for free, with no obligation.