What’s the difference between redraw and offset accounts?
- Redraw facility and offset account both allow borrowers to withdraw extra payments they've made into their mortgage.
- Offset accounts offer more flexibility, but generally come with a higher interest rate or extra fees.
- Most home loan products in Australia allow a redraw, but there may be restrictions on how much or how often you can take back out.
If you’re comparing home loan products the ability to redraw and offset accounts are important features to watch out for. When used correctly, a redraw facility and/or an offset account can give you the leg-up you need to get on top of your mortgage and save on your repayments.
Redraw v offset account
| Redraw | Offset account | |
|---|---|---|
| What is it? | A redraw facility allows you to withdraw any overpayments you've made towards your home loan. | An offset account is a transaction account linked to your home loan, whereby the balance is deducted from the outstanding amount owed when interest is calculated. |
| How does it reduce your outstanding interest? | Any overpayments you make go towards paying down the principal amount interest is calculated on | Everything in your offset account is deducted from the outstanding principal |
| How does it help you pay off your mortgage sooner? | Extra repayments also mean you are paying your loan off quicker than your loan term | Since an offset account reduces your interest bill, more of your repayments go towards paying off the principal which can reduce your loan term. |
| How easily can you access your money? | Many products have unlimited redraws, but there still may be a minimum amount or a small redraw fee. | You can access money in your offset account like a normal savings or transaction account. |
| What are the tax implications? | If you decide to rent out your property, interest on any portion of the loan that you withdraw not for investment purposes may not be tax deductible. | Regardless of how much is in your offset account, your interest bill may be entirely deductible. |
| How much does it cost? | Redraw facilities are often included on 'basic' low rate home loan products | Home loans with offset accounts generally have higher interest rates and/or fees than those without. |
Why is overpaying on your mortgage important?
Even modest amounts on top of your minimum repayment can significantly reduce the amount of interest you pay over the life of your loan. Every extra dollar goes straight toward reducing your principal, lowering the balance that interest is calculated on and increasing the share of your future minimum repayments that goes toward paying down the principal rather than covering interest.
Overpaying is especially powerful in the early years of a mortgage, when a higher proportion of each repayment is made up of interest. Reducing the balance sooner helps shift that ratio, shortening your loan term and cutting your interest bill.
Most mainstream variable home loan products today offer either a redraw facility, an offset account, or both, but they are not created equal. In my experience, the majority of lenders still provide redraw as a standard feature, while full offset accounts are more common on packaged loans and often come with a slightly higher interest rate or annual fee.
Offset accounts in Australia
Offset accounts are a popular choice in Australia. According to APRA data, the total balance in offset accounts among Australia's ADIs (fancy definition for institutions with a banking licence) was over $327 billion in the December 2025 quarter, up more than 8% from the previous period. Since December 2023, offset account balances have risen more than 23%.
How much can you save using a redraw facility or offset account?
Let’s say you have a $600,000 home loan, paying 6% p.a in interest over 30 years. Here's how much you could save over the life of the loan making extra payments into an offset/redraw facility:
Extra monthly payments
Total interest bill
Potential savings
$0
$695,029.60
$0
$500
$482,315.86
$212,713.74
$1000
$374,439.22
$320,590.38
$2000
$261,682.18
$433,347.42
Data sourced from Savings.com.au’s mortgage calculator.
Redraw and offset account similarities
Both redraw facilities and offset accounts...
Reduce the interest payable on your loan
Both redraw facilities and offset accounts are means to reduce the loan balance on which your interest payments are calculated. Paying $20,000 extra on your home loan will reduce your interest bill by the same amount as having $20,000 in an offset account.
Help you pay off your mortgage faster
Your offset account balance reduces the amount of your mortgage that’s charged interest. Say your current home loan debt is $500,000 and your offset account is $20,000. In this scenario, interest will only charged on a balance of $480,000. You’ll pay the same amount each month, but a bigger share of the repayment will go towards paying off the principal rather than interest. This means that you should be able to pay off your home loan earlier.
Lets say instead that you pay this $20,000 directly into your mortgage. Your minimum repayments cover your interest bill, so $20,000 is subtracted directly from the outstanding loan amount. Again, your future interest payments will now be calculated on a balance of $480,000, so each month you will now pay off more of the principal, and will end up paying off the loan faster.
Savings.com.au's two cents
Neither option is better than the other, it just depends on your priorities. For example, if you intend to renovate your property a few years down the track, making overpayments and then using a redraw could be a good way to save up for this. The restrictions on redrawing might end up coming in handy to help you save the amount you are intending, while loans without an offset account can sometimes have lower rates and fees.
On the other hand, you might prefer unencumbered access to as much of your financial assets as possible. In that case an offset account might be a great way to bring down your interest bill without sacrificing liquidity.
Differences between offset and redraw
There are also some important distinctions between redraw and offset:
Flexibility
An offset account is a transaction account that while linked to your home loan, exists separately. For you the borrower, this provides flexibility as it means you can access the money instantly and without restriction.
In contrast, a redraw facility is not a separate account, but a feature attached to your home loan. A redraw facility may not be as flexible as an offset account as it is money you have already paid to the lender, and will need to request a redraw to use it. There might also be other restrictions - you may not have the option to redraw money from an ATM or transact using a debit card, for example. Some lenders may also set minimum redraw amounts and charge fees for redrawing.
While this might seem like a big advantage for offset accounts, some people might prefer having restricted access to their extra payments. Those who are putting money aside deliberately, perhaps with renovations in mind, might appreciate removing the temptation to dip into their savings.
Tax implications
If you plan to rent out your home in the future, redraw facilities and offset accounts are treated differently for tax purposes.
When a property becomes an investment, interest charged on the loan is generally tax deductible. However, if you’ve used the redraw facility for non-investment expenses - such as buying a car or funding a holiday - the interest on that portion of the loan will not be deductible. This is because the loan then has a 'mixed purpose' which means you can only claim deductions on the investment-related part.
By contrast using funds from an offset account doesn’t change the purpose of your loan. Withdrawing money reduces the balance in the offset, which increases the interest charged, but the entire loan balance remains investment-related so your entire interest bill is tax deductible.
Because the rules can be complex and depend on your circumstances, it’s a good idea to seek advice from a tax professional or accountant before relying on deductions.
Cost
Even many basic home loans, products with a lender's lowest available rate, have a redraw available these days. Home loans with offset accounts tend to be rarer, and usually come with extra fees or higher rates.
Are offset accounts worth it?
Whether it is worth paying more for an offset really comes down to behaviour and cash flow. If a borrower consistently keeps a meaningful balance in their account, say $20,000 or more, and wants flexibility without reducing their formal loan limit, an offset can absolutely justify the higher cost. It reduces interest daily while keeping funds accessible, which is ideal for salaried professionals, business owners or anyone with variable income.
On the other hand, if someone is focused purely on paying down their loan as fast as possible and does not need regular access to those extra repayments, a redraw facility can be a cost effective alternative. The key is aligning the feature set with the borrower’s spending habits and long term strategy.
Read more: Should I put money in my offset or pay my mortgage off early?
Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.
| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Extra Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
5.94% p.a. | 5.98% p.a. | $2,978 | Principal & Interest | Variable | $0 | $530 | 90% |
| Promoted | Disclosure | ||||||||||
5.89% p.a. | 5.80% p.a. | $2,962 | Principal & Interest | Variable | $0 | $0 | 80% |
| Promoted | Disclosure | ||||||||||
5.99% p.a. | 6.02% p.a. | $2,995 | Principal & Interest | Fixed | $0 | $0 | 60% |
| Promoted | Disclosure | ||||||||||
5.93% p.a. | 5.93% p.a. | $2,975 | Principal & Interest | Variable | $0 | $395 | 70% | Disclosure |
Article originally published by Alex Brewster.