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Offset Accounts vs. Redraw Facilities: Mortgage Tools That Save You Money (If You Know How to Use Them)

Joel Hynes
1 day ago
4 min read

Mortgage Jargon Decoded: Offset vs. Redraw

If you've ever sat through a home loan meeting and nodded along while the banker talked about "offset accounts" and "redraw facilities," congratulations—you've officially earned your Confused Adulting Badge.

But fear not, because these two features aren't just financial fluff. Offset accounts and redraw facilities can save you thousands in interest—if you understand the difference, and more importantly, how to use them.

So let's cut through the jargon and serve you the plain-English, wit-laced breakdown of which one works best, why they matter, and how to tell them apart without crying into your variable rate statement.

What Is an Offset Account (and Why It's Like a Financial Forcefield)?

An offset account is a separate everyday transaction account that's linked to your mortgage. The balance in your offset account is used to reduce the interest charged on your home loan.

🧠 Real Example:

You have a $600,000 mortgage and $40,000 sitting in your offset account. You're only charged interest on $560,000. Not bad, right?

✅ Benefits:

Immediate savings on interest every day your money sits there
Acts just like a regular bank account—spend, save, transfer freely.
Reduces your loan term if you keep the balance high
Great for people who keep savings or income in one place

😬 Drawbacks:

Usually only available on variable loans (or fixed with split)
Fees or higher rates can apply for offset loan packages.
If you don't keep a decent balance in the account, you might not save much.

What Is a Redraw Facility? (AKA Your Loan's Piggy Bank)

A redraw facility lets you take out any extra repayments you've made on top of your scheduled loan repayments.

🧠 Real Example:

Your minimum repayment is $2,000/month. You've been paying $2,500 per month for a year. That's $6,000 you've paid in advance, which you can access at any time through redraw.

✅ Benefits:

Helps reduce your loan balance = less interest
Perfect if you want to stash away extra money but still access it later
No temptation to spend like with a daily-access account
Often available without extra fees

😬 Drawbacks:

Not always instant—some lenders delay access to redraw.
It may limit how often or how much you can withdraw.
Not as flexible as an offset—less ideal for everyday use
Some fixed-rate loans don't allow redraw at all.

Offset vs. Redraw: The Key Differences

Feature	Offset Account	Redraw Facility
Type	A transaction account linked to a loan.	Extra repayments you can access
Access	Instant, like a bank account	Access via app or request can be limited.
Best For	Daily spending + savings + salary	Lump sum savings + discipline
Interest Saving	Yes – daily interest offset: This means that the balance in your offset account is deducted from your loan balance each day, reducing the interest you pay on your loan.	Yes – reduces principal, then interest.
Flexibility	High	Moderate
Temptation to Spend	High (easy access)	Low (hidden in the loan)
Available On Fixed Loans	Rare	Sometimes, but limited
Loan Type Needed	Usually variable rate	Variable or fixed

Which One Should You Choose?

🏦 Offset If:

You want flexibility and plan to keep a decent balance in your account.
You like using one account for everything (salary, savings, bills)
You want to reduce interest without locking up your money.

🐖 Redraw If:

You're disciplined and want to make extra repayments to kill the loan faster.
You don't need daily access to the funds.
You're on a fixed-rate loan or want a simpler structure

Pro tip? Some savvy borrowers use both: they park their savings in an offset account and make extra repayments into the loan for a redraw buffer. Best of both worlds—if your lender allows it.

The Long-Term Savings Reality

Let's say you have a $600,000 home loan over 30 years at an interest rate of 6%.

💰 Scenario A:

You keep $30,000 in an offset account continuously. Savings over 30 years: ~$70,000+ in interest. Loan term shortened by: ~2.5 years

💰 Scenario B:

You make $500 per month in extra repayments into your loan (via redraw). Savings over 30 years: ~$110,000+ in interest. Loan term shortened by ~7 years.

Moral of the story? Both save you money, but redraw rewards the disciplined, while Offset favours the flexible.

Tax Time Twist: Investors Beware

Offset accounts keep your money separate, which can be important for investment properties.

Using redraw on an investment loan can muddy the tax deductibility waters, especially if you're withdrawing for personal reasons (e.g. Bali trips or a new Jet Ski).

Always chat with your accountant if you're mixing personal spending with investment loans. The ATO does not appreciate "Oops, I used my redraw for a kitchen reno."

Conclusion: It's a Money-Saving Showdown (With No Losers)

Offset accounts and redraw facilities are both powerful tools to save you interest, speed up your loan payoff, and give you a level of control over your mortgage that most borrowers don't realise they have.

The key? Know how you manage money, understand how each feature works, and choose what aligns with your financial habits and goals.

Whether you're Team Offset or Team Redraw (or play for both sides), the only real loser is the bank, not getting more interest from you. And that's a win worth celebrating.