Offset or Redraw? The Smartest Way to Cut Your Mortgage Interest in 2025 (Australia Guide)

Offset Account vs Redraw Facility (2025): 모기지 이자 아끼는 가장 효율적인 방법

Australia 2025 · Home loan interest savings, comparison, pros and cons

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TL;DR Summary

• Both Offset Accounts and Redraw Facilities help reduce mortgage interest by lowering the loan’s daily balance.
• Offset Accounts are linked savings accounts — your balance directly offsets the loan interest daily.
• Redraw Facilities let you withdraw extra repayments you’ve made — but access can be slower or restricted.
• Offset gives more flexibility (great for cash flow and tax planning), while Redraw suits those wanting simplicity and discipline.
• Not all home loans offer both — check fees, rate differences, and redraw conditions carefully.

Why this matters in Australia (2025)

With interest rates still higher than pre-pandemic levels, how you manage spare cash can significantly affect your loan cost. Using an Offset Account or making extra repayments into a Redraw Facility are two key ways Australians reduce mortgage interest without refinancing.

Comparison: Offset Account vs Redraw Facility

Feature	Offset Account	Redraw Facility
How it works	A linked transaction account — every dollar offsets loan balance, reducing interest daily.	Extra repayments reduce principal; you can redraw them later (subject to conditions).
Accessibility	Instant — like a normal bank account with debit card.	May require online request or processing delay; some banks limit frequency.
Interest savings	Full balance offsets daily interest.	Extra payments lower principal, saving interest too — similar effect.
Tax implications	Offset balances are separate — easier to distinguish for investment property purposes.	Redraw reduces the loan principal — may complicate tax deductibility if property becomes investment later.
Fees / Rates	Often higher loan rate or monthly account fee.	Usually lower cost or no monthly fee.
Best for	Borrowers with variable income, savings buffers, or investment plans.	Borrowers who prefer to “set and forget” extra repayments for discipline.

Who each option suits best

• Offset Account: Ideal if you keep savings or salary in the account, want instant access, or may convert your home into an investment later.
• Redraw Facility: Best for those who want to pay down debt faster, don’t need daily access, and prefer simpler low-fee loans.

How to choose (step-by-step)

1. Check if your current home loan supports an offset or redraw feature.
2. Estimate how much cash you usually keep in your everyday account — if large, offset may save more interest.
3. Compare interest rate differences (offset-linked loans often 0.10–0.25% higher).
4. Review fees: offset accounts can have monthly fees ($10–$20), redraw often free but may have limits.
5. Consider tax implications if you may turn your home into an investment property later.
6. Calculate savings: use a mortgage calculator or your bank’s comparison tool.

Costs and key considerations

• Offset loans: Usually variable rate, with higher rate or monthly account fees.
• Redraw loans: Often cheaper rate; may have redraw restrictions or minimum redraw amount ($500+).
• Tax tip: Offset balances are not repayments — keeps future deductibility intact for investment conversions.
• Accessibility: Offset = instant; Redraw = may take 1–2 business days.
• Security: Redraw funds technically belong to the lender until withdrawn; offset money is yours in a linked account.

FAQ (Australia 2025)

Which saves more interest, offset or redraw?

Both can save the same amount if balances are equal — but offset gives more access flexibility, while redraw is more restrictive but lower cost.

Is an offset account worth it in Australia 2025?

Yes, if you keep significant savings or your income stays in the account. The extra flexibility can outweigh slightly higher rates or fees.

Can fixed-rate loans have offset accounts?

Only some lenders offer partial or 100% offset for fixed loans — most offset features are for variable-rate home loans.

Does redraw affect tax deductibility later?

Yes. Redrawing funds changes the loan principal, which can affect future investment loan interest deductions. Offset doesn’t have this issue.

Are redraw funds safe if the bank changes terms?

Banks can restrict redraw access in rare cases. Offset balances are held separately in your name, providing better liquidity protection.

Can I have both offset and redraw?

Yes — some loans include both features. Many Australians use offset for flexibility and redraw for longer-term extra repayments.

Sources / Official References

• MoneySmart.gov.au — Offset accounts and redraw facilities
• Australian Taxation Office (ATO) — Interest deductibility rules for investment properties
• ASIC — Home loan comparison and offset guidance

Important disclaimer

This article is for general information only and is not financial advice. Please check official government resources or speak to a licensed mortgage adviser before making financial decisions.