Quick answer
An offset account is a transaction account linked to your home loan, where the balance is subtracted from the loan when interest is calculated. A redraw facility lets you withdraw extra repayments you have already made. Both can reduce interest, but access and tax treatment differ. Ownright Custom Finance helps Australians choose between them.
Key points
- An offset account reduces the interest charged without paying down the loan
- Redraw lets you access extra repayments you have made
- Access to funds can differ, depending on the lender and the loan
- Investors should talk to their accountant about the tax effect
- Suits
- Borrowers who hold savings or want flexibility
- Security
- Residential property
- Available on
- Mostly variable loans, some fixed portions
- Australia-wide
- Yes
How does an offset account work?
An offset account is a bank account linked to your home loan. At the end of each day the lender subtracts the account balance from the loan balance before calculating interest. If you owe $400,000 and hold $40,000 in your offset account, interest is worked out on $360,000, though your loan balance and required repayment are unchanged.
The attraction is that your money is still yours and still within reach. It can be your everyday account, a savings bucket or a place to park a tax refund. Every dollar sitting there is quietly working against the interest on your loan.
How does a redraw facility work?
Redraw is a feature built into the loan itself. When you pay more than the minimum, the extra amount reduces your loan balance, which reduces the interest. If you need that money later, you can usually withdraw it through redraw. Lenders may impose minimum withdrawal amounts, a processing time or conditions on access, and in some cases they can restrict redraw altogether, so it pays to read the terms.
Offset versus redraw at a glance
| Feature | Offset account | Redraw facility |
|---|---|---|
| Where the money sits | In a separate linked account | Inside the loan |
| Effect on the loan balance | Unchanged | Reduced by extra repayments |
| Access | Usually like an everyday account | Subject to lender rules |
| Typical cost | May carry a fee or package | Often included |
| Investment property | Generally keeps the loan simple | May complicate how interest is treated |
| Suits | People holding cash buffers | People paying extra and rarely withdrawing |
For a longer comparison, read our guide on offset versus redraw.
Who benefits most from an offset or redraw?
- Homeowners with a savings buffer they want to keep accessible
- Self-employed people holding cash for tax and BAS
- Households that receive irregular bonuses or income
- Investors wanting flexibility on how debts are structured
- Borrowers planning to keep a loan for years rather than refinance quickly
What do lenders look at?
An offset account does not change whether you qualify, but the loan it comes with does. Lenders still assess income, expenses, debts and security as usual. Some lenders only offer offset on variable loans, or require a package with an annual fee. If you are comparing fixed and variable home loans, check how each treats the feature. For borrowers with irregular earnings, our pages on self-employed home loans explain how income is assessed.
Offset and redraw for investors
Investors have extra things to consider. If you pay extra into an investment loan and later redraw to fund personal expenses, the interest on that redrawn portion may no longer be treated the same way for tax purposes. A separate offset account can keep the loan structure clean. The ATO publishes general guidance on rental property deductions, and your accountant is the right person to confirm what applies. See our page on investment property loans for structure ideas.
How Ownright helps with offset and redraw
Trevor Scott likes to say that features should serve your habits, not the other way around. We ask whether you are a saver, a spender, a bonus-getter or a tax-bill-in-April kind of person. Then we match the feature to the way you actually handle money.
If you already have a loan with no offset, a refinance may be an option. If you have an unusual income or a credit blemish, we look at lenders with a broader appetite. We work with borrowers in every state and territory.
An illustration
Illustrative scenario only. A self-employed electrician keeps a cash buffer for quarterly tax payments. A broker might suggest a variable loan with an offset account, so the buffer reduces interest in the months it sits there, while remaining available when the ATO bill arrives. Extra repayments after a strong quarter can go into redraw or into the offset, depending on the tax position of the loan.
Mistakes to avoid
- Paying a package fee for an offset you rarely use
- Assuming redraw access is always instant and unlimited
- Mixing personal spending into an investment loan redraw without advice
- Forgetting that fixed loans may not include offset
- Letting an offset balance sit empty for years
How much does an offset account really save?
The saving depends on how much you keep in the account and for how long. A small balance that bounces around has a modest effect, while a large balance parked for years can reduce interest considerably. The fair way to judge it is to compare the cost of any fees or rate difference against the interest you would realistically offset, using your own habits.
Offset works best for people who tend to hold cash. If you spend almost everything you earn, redraw or simply paying extra when you can may achieve the same result without added costs. We help you run through the numbers conceptually so you do not pay for a feature you will not use.
Can I use an offset with a split or interest only loan?
Often, yes, on the variable portion. A split loan might have a fixed part with no offset and a variable part with a full offset. Interest only loans can also have offset accounts with some lenders. The combination matters most for investors and self-employed borrowers who like flexibility, so tell us about your cash habits and we can look at which lenders pair these features sensibly. Our page on interest only home loans explains the other half of that picture.
Documents to have ready
- Photo ID
- Income evidence such as payslips, tax returns or business financials
- Current loan statement if refinancing
- Recent bank statements showing savings
- Details of any investment properties
See our guide on how to get loan ready for tips.
Want a loan with the right features?
Tell us how you manage your savings and we will compare options, or call 03 7043 7233 for a chat.
Looking for a home loan with an offset or redraw feature?
Sounds like you want a home loan that lets your savings do some of the work. We are the lending experts in matching loan features to real habits, so click the button below and see if you qualify.
How it works, step by step
- 1
Step 1
We ask how much cash you keep and how often you need to reach it.
- 2
Step 2
We compare offset, redraw and package features across suitable lenders.
- 3
Step 3
We explain fees, access rules and any limits on fixed portions.
- 4
Step 4
We set up the loan and help you use the feature well.
Frequently asked questions
What is an offset account?
An offset account is a separate transaction or savings account linked to your home loan. The balance in the account is deducted from your loan balance when interest is calculated, so you pay interest on the smaller amount. Your money stays in the account and remains accessible, and the loan balance itself is unchanged.
What is a redraw facility?
Redraw lets you take back money you have paid into the loan beyond your required repayments. It lowers the loan balance, so interest reduces, and you can usually withdraw those extra funds later. Lenders may set minimum withdrawals, limits or processing times, and in some cases can restrict access.
Which is better, offset or redraw?
Neither wins in every case. Offset keeps savings separate and generally easy to access, which suits people who want flexibility. Redraw is often free to use and simple, but access rules vary. Our guide on offset versus redraw compares them, and we can match your habits to a loan.
Are there tax differences for investment properties?
Potentially. Money paid into redraw on an investment loan can change how interest is treated if funds are later withdrawn for private purposes, whereas an offset balance generally leaves the loan and interest structure unchanged. Tax rules are specific, so confirm the detail with your accountant or the ATO.
Do offset accounts cost extra?
Sometimes. Some lenders include an offset account, others charge a fee or package it with other features, and the loan rate may differ from loans without one. Weigh the cost against the interest you expect to save. We compare these details for you before you choose.
Can I have an offset on a fixed rate loan?
It depends on the lender. Many fixed loans do not include offset, while some allow a partial offset or let you split the loan so the variable part has one. If offset matters to you, mention it early so we can steer you to suitable options.