Redraw vs Offset: Key Differences & Which One to Choose

When managing your home loan, understanding the difference between redraw and offset accounts can save you thousands in interest and provide flexibility with your finances.

Both options offer unique advantages depending on your financial situation and goals. In this guide, we'll explore redraw vs offset features, how they work, and which might be better for your circumstances.

We'll also cover how Credit24 small loans can help you if you're in need of some extra cash, up to $10,000.

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What are redraw facilities and how do they work?

A redraw facility is a home loan feature that allows you to access extra repayments you've made on your mortgage. When you pay more than your minimum required repayment, this additional money reduces your loan balance and the interest calculated on it. However, unlike regular repayments, you can withdraw or "redraw" these extra funds if needed.

For example, if your minimum monthly repayment is $500 but you consistently pay $750, after a year you'll have $3,000 in available redraw funds. This money works for you by reducing your loan principal and therefore the interest charged, but remains accessible if unexpected expenses arise.

The primary benefit of a redraw facility is that it encourages you to put extra money into your mortgage (reducing interest) while maintaining a safety net. Since the interest rate on your mortgage is typically higher than what you'd earn in a savings account, this approach can be a financially savvy way to manage surplus cash.

What are offset accounts and how do they work?

An offset account is a transaction account linked to your home loan that reduces the interest charged on your mortgage. The balance in your offset account is “offset” against your loan balance when calculating interest.

If you have a $400,000 mortgage and $50,000 in your offset account, interest is only calculated on $350,000. This can lead to significant savings over the life of your loan and potentially help you pay off your mortgage years earlier.

For instance, imagine you receive your monthly salary of $6,000 directly into your offset account. Even if you gradually spend this money throughout the month, it's still offsetting your loan balance for the days it remains in the account, reducing your interest payments accordingly. Since interest on most home loans is calculated daily, every dollar in your offset account works to reduce your interest charges each day it stays there.

Differences between offset and redraw

As we've just seen, redraw allows you to withdraw extra repayments you've made on your home loan, whereas an offset account is a separate transaction account that reduces the interest calculated on your mortgage. While they both can save you money on interest, they function quite differently in practice.

Interest calculations

With an offset account, interest savings occur daily based on the full balance in your account. If you have $20,000 in your offset account today, you're saving interest on that full amount immediately, even if you withdraw it tomorrow.

In contrast, redraw facilities typically only save you interest on the specific additional repayments you've made. Some lenders also calculate redraw balances differently, potentially reducing the interest-saving benefit compared to offset accounts.

Access flexibility

Offset accounts typically offer immediate access to your funds through ATMs, EFTPOS, online banking, and branch withdrawals—just like a regular transaction account. You can use your offset balance for daily purchases with a debit card or make transfers at any time.

Redraw facilities generally have more restrictions. Accessing your redraw funds often requires submitting a request through your online banking portal, by phone, or in person at a branch. Some lenders impose:

• Minimum withdrawal amounts (e.g. $500 or $1,000)
• Limits on how often you can redraw
• Processing delays of 1–3 business days
  

Account structure

The difference between redraw and offset account structures is fundamental.

• An offset account is a separate transaction account linked to your home loan but remains distinct from it. Your offset funds are technically still your savings, not repayments toward your loan.
• A redraw facility isn’t a separate account at all—it’s a feature built into your loan that tracks extra repayments and allows you to withdraw them. When you make additional repayments, you’re actually paying down your loan principal, which you can later access if needed.
  

Fee structure

Offset accounts often come with ongoing fees, such as:

• Monthly account-keeping fees (typically $5–$15 per month), and/or
• Package fees (often $300–$400 per year)

Redraw facilities are generally more cost-effective, with many lenders offering free online redraws. However, some may:

• Charge a fee for each redraw (especially in-branch or over the phone)
• Limit the number of free redraws per year
  

Tax implications

The difference between redraw and offset from a tax perspective can be significant, particularly for investment properties.

With an offset account, the original loan amount remains intact for tax purposes, regardless of the offset balance. However, if you make extra repayments and later redraw those funds for personal use (not investment purposes), the redrawn portion may lose its tax-deductible status.

Example:
If you have a $500,000 investment loan and redraw $50,000 for a family holiday, you may only be able to claim tax deductions on the interest for $450,000 of your loan, even after you repay that $50,000.

Banking features

Offset accounts typically function as full-featured transaction accounts, often including:

• Debit card access
• Direct debits and scheduled payments
• BPAY
• Salary crediting
• Sometimes cheque facilities

Redraw facilities are much more limited. They:

• Don’t have their own card
• Don’t support direct debits
• Only exist as a way to withdraw extra repayments

To use redraw funds, you typically need to transfer them into a separate transaction account first.

Impact on loan terms

Using an offset account does not change your loan’s structural terms. Your minimum repayment amount and loan term usually remain the same.

With redraw facilities:

• Some lenders recalculate your minimum repayments after large extra repayments, potentially lowering your minimum monthly payment.
• Others keep repayments the same, which helps you pay off your loan faster.
• Some lenders reserve the right to restrict redraw access under certain conditions (e.g. hardship), meaning your access may be less certain than with an offset.
  

Offset and redraw: Similarities

Despite their differences, offset accounts and redraw facilities share important similarities.

Both:

• Help reduce total interest paid by lowering the effective balance on which interest is calculated
• Allow you to put extra money to work on your mortgage while maintaining some level of access
• Can act as a form of emergency buffer: your “safety net” sits inside or alongside your home loan
• Are typically attached to variable-rate loans (with more limited availability or restrictions on fixed-rate products)

Both can be powerful tools for:

• Reducing your mortgage interest
• Keeping access to funds for other goals or emergencies
• Balancing long-term debt reduction with short-term flexibility
  

Can I have both offset and redraw facilities?

Yes, you can have both an offset account and a redraw facility on the same home loan, and many borrowers use this combination effectively.

For example, you might:

• Use your offset account for day-to-day banking, salary deposits, and bills to maximise daily interest savings
• Use your redraw facility for additional, longer-term extra repayments set aside for future projects like renovations or education

This approach gives you:

• The transactional convenience of an offset
• The discipline and potentially lower-fee structure of redraw

However, always review:

• Package/annual fees for offset accounts
• Any redraw fees or restrictions
• The overall interest rate on the loan

The combination works best when the interest rate is competitive and the fees don’t outweigh the benefits.

Redraw vs offset: Which is better?

There’s no one-size-fits-all answer—what’s “better” depends on your situation, goals, discipline, and whether the property is an owner-occupied home or an investment.

Redraw facilities may suit you if you:

• Want to minimise ongoing account fees
• Are a disciplined saver who doesn’t need frequent access to extra funds
• Have an owner-occupied home where tax implications are less complex
• Prefer straightforward account structures without extra cards or accounts
• Want a feature that subtly discourages impulse spending of your savings
• Are open to potentially reducing your minimum repayments over time (with some lenders)

Offset accounts may suit you if you:

• Have (or plan to have) an investment property and want to maximise tax effectiveness
• Want full transaction features, including cards, direct debits, BPAY, and salary deposits
• Value maximum flexibility and frequent, easy access to your funds
• Intend to use savings for future investments or large purchases
• Prefer to maintain your original loan structure while still heavily reducing interest

A simple rule of thumb:

• Need easy access + strong tax planning? Offset often wins.
• Want lower fees + simple structure + strong discipline? Redraw may be more cost-effective.
  

Need extra money? Consider a fast short-term personal loan

While offset accounts and redraw facilities are great for managing your mortgage, sometimes you need a separate solution for immediate cash needs.

That’s where Credit24’s fast personal loans can help. Compared to tapping your home loan, our personal loans can offer:

• Shorter loan terms: Our loans have clear repayment schedules, typically between 6 and 36 months.
• Fixed borrowing structure: You’ll know exactly how much you’re borrowing and your interest rate, making budgeting simpler.
• Debt separation: Keep your short-term borrowing separate from your long-term mortgage, making it easier to track and manage goals.
• No property security required: Our personal loans don’t require your home as security.
• Clear completion date: Unlike redrawing from your mortgage (which can extend your loan), our loans have a definite end date.
• Simple qualification process: Our online application can be completed in minutes, with minimal documentation.
• Fast approval and funding: If approved, you could receive funds in your account in as little as 60 seconds (for eligible customers).

Whether you’re facing an unexpected expense, consolidating higher-interest debts, or funding a special purchase, a Credit24 personal loan can provide a quick, transparent solution without complicating your home loan.

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