If you have a home loan — or you're about to get one — you've almost certainly come across two terms: offset account and redraw facility. Both can save you thousands in interest over the life of your loan, but they work differently, suit different borrower types, and have very different tax implications for property investors. With the RBA cash rate sitting at 4.35% since June 2026, making smart use of every dollar counts more than ever.
Quick answer: For owner-occupiers, either feature works well — a redraw facility is cheaper to run, while an offset account gives you more flexibility. For investment properties, an offset account is strongly preferred for tax reasons.
What Is an Offset Account?
An offset account is a transaction account linked to your home loan. Money you deposit into it is counted against (or "offset" against) your loan balance when interest is calculated each day. You don't pay down the loan itself — the money sits in the account, accessible like any bank account — but you pay interest as if the loan were that much smaller.
For example, if you have a $550,000 loan balance and $50,000 sitting in your offset account, you'll only be charged interest on $500,000. At a rate of 6.20%, that $50,000 buffer saves you roughly $3,100 in interest per year — far more than any savings account would return after tax.
Offset accounts are typically 100% offset, meaning the full balance counts — though some lenders offer partial offset accounts where only a percentage applies. Always check which type you're getting.
What Is a Redraw Facility?
A redraw facility is not a separate account — it's a feature built directly into your home loan. When you make extra repayments above your minimum required repayment, those additional funds reduce your outstanding loan balance. The redraw facility then allows you to pull those extra repayments back out again if you ever need access to the funds.
So if your minimum monthly repayment is $2,800 and you've been paying $3,300 for two years, you may have $12,000 of "available redraw" sitting inside the loan. You can access this in a lump sum or as needed — though some lenders impose minimum withdrawal amounts or take a day or two to process requests.
Redraw facilities are commonly included in variable rate home loans at no extra cost, making them a practical option for borrowers who want the discipline of paying down debt while keeping a safety net available.
How Do They Differ in Practice?
| Feature | Offset Account | Redraw Facility |
|---|---|---|
| Where money sits | Separate linked account | Inside the loan itself |
| Access speed | Instant (debit card available) | May take 1–2 business days |
| Reduces loan balance? | No — interest calculated only | Yes — principal is actually reduced |
| Typical cost | Annual package fee ($350–$450/yr) | Usually free |
| Linked debit card | Yes | No |
| Best for investors? | Yes — preserves tax deductibility | Risky — can contaminate deductibility |
The Critical Tax Difference for Property Investors
This is the point that many borrowers miss — and it can cost investors thousands in lost tax deductions.
When you hold extra funds in an offset account against an investment loan, the money never enters the loan. Your loan balance stays the same. The full balance remains tax-deductible, because you haven't changed the purpose of the borrowing.
When you use a redraw facility on an investment loan and then redraw those funds for a private purpose (such as a holiday, car, or home renovation), the ATO treats the redrawn amount as a new borrowing — one that was not used to produce income. This can permanently contaminate the deductibility of that portion of your loan interest, a problem that can persist for decades.
The ATO's position on this is well established, and it is worth discussing with your accountant before choosing your loan structure. As a general rule, if you are buying an investment property, speak to a broker about structuring the loan with an offset account from day one.
Which Is Better for Owner-Occupiers?
For owner-occupiers, the tax distinction doesn't apply — you're not claiming interest deductions on your home anyway. So the decision comes down to cost versus convenience.
- If you're disciplined about keeping a consistent savings buffer and want the lowest possible ongoing cost, a redraw facility may be perfectly sufficient — and it avoids the annual package fee.
- If you want the flexibility of a transaction account with a linked debit card, or you tend to need faster access to funds, an offset account gives you more day-to-day flexibility.
- If your offset balance is regularly above $50,000–$60,000, the annual interest saving will easily outweigh the package fee. Below $20,000, the maths often favours redraw.
Many variable rate home loans include both features, giving you the ability to use the offset account for savings and the redraw facility as an emergency buffer — a combination that suits a lot of Melbourne borrowers managing monthly budgets across mortgage, super contributions, and rising living costs.
Does the Feature Matter More Than the Rate?
A common mistake borrowers make when refinancing is choosing a loan purely for an offset account, while accepting a rate that's 0.30%–0.50% higher than a simpler product. On a $600,000 loan, that rate gap costs $1,800–$3,000 per year — far more than most people save in offset interest, unless they're holding very large balances.
The right answer is rarely "offset vs redraw" in isolation — it's the combination of rate, fees, features, and how you actually use the loan. According to ASIC's MoneySmart, comparing the full cost of a loan — including annual fees, comparison rate, and features — is the only accurate way to assess value.
This is where a mortgage broker earns their keep. Rather than a bank presenting one option, a broker compares dozens of products across lenders and models the actual cost impact of each feature against your specific loan size and savings habits.
Not sure which loan structure is right for you?
Brian and Frank will model the numbers across real lenders — and show you exactly which features are worth paying for in your situation. No cost, no obligation.
Book a free consultation or call 0401 333 636
IFG is MFAA-accredited. Brian Hermosilla (MFAA #716100, CR 485802) and Frank Marin (MFAA #242075, CR 486546) are Credit Representatives of BLSSA Pty Ltd ACL 391237.
This article is general information only and does not constitute financial or tax advice. Tax treatment of investment loan interest depends on individual circumstances and may change. Interest rates referenced are indicative only. Please speak with a qualified mortgage broker and your accountant before making decisions about your loan structure.