Offset account vs redraw: what's the difference?

Practical differences

Offset money remains in an account and is usually available for everyday transactions. Redraw sits inside the loan; the lender may set minimum amounts, delays, fees or access restrictions under the loan terms.

• Compare any higher rate or package fee for an offset.
• Check whether the offset is 100% or partial.
• Read the redraw access and closure rules.
• Seek tax advice before redrawing from an investment loan.

Which may suit you?

An offset can suit borrowers who keep meaningful cash savings and want transaction access. Redraw can suit disciplined extra repayments on a suitable loan. The benefit must outweigh any additional price or fees.

An offset saving example

If a $600,000 loan has $30,000 in a 100% offset, interest is generally calculated on $570,000 while that balance remains. The repayment may stay the same, with more of it reducing principal. The benefit changes daily as money enters and leaves the account. Compare the expected annual interest saving with any package fee or higher interest rate. An offset that costs $395 a year may not add value if the average balance is very low.

Redraw access is controlled by the loan terms

Extra repayments reduce the loan balance, and redraw may allow some of that money to be accessed again. The lender can impose minimum redraw amounts, processing delays or availability rules. Redraw is not identical to cash in a deposit account, and access can be affected if the loan is restructured, fixed, closed or in arrears. Keep emergency money in a form that provides the level of access you need, after considering the interest trade-off.

Investment-loan tax tracing

With an investment loan, withdrawing previous extra repayments can create a new borrowing whose tax treatment follows the new use of the funds. An offset withdrawal does not change the loan balance in the same way. This distinction can matter when a former home becomes an investment or money is used for mixed purposes. Do not rely on general rules for a personal tax decision. Obtain advice from a registered tax agent before moving or redrawing substantial funds.

Questions to ask before you proceed

• What are the interest rate, comparison rate, ongoing fees and total expected cost?
• How do the offset, redraw, extra-repayment and loan-split rules work in practice?
• What would the repayment become if rates rose or the selected feature changed?

Official guidance: Moneysmart: Pay off your mortgage faster

This is general information, not personal financial, tax or legal advice. Lending criteria, fees and eligibility vary.

Related questions

• Fixed vs variable home loans: which is better?
• Does a mortgage broker cost money?
• Should I make extra repayments or keep money in an offset account?