Australia 2025 • mortgage offset • interest savings • tax
Offset Account vs Redraw: What Saves More Interest?
오프셋 vs 리드로 — 모기지 이자 절감과 세금 측면 비교
TL;DR Summary (5 points)
- Both offset and redraw reduce mortgage interest by lowering the balance the lender charges interest on.
- An offset account is a separate linked bank account; a redraw facility is part of your loan.
- Offset offers more flexibility for everyday access, while redraw may have limits or delays.
- For investment properties, using an offset often provides clearer tax deductibility if you later convert the loan.
- Offset accounts usually come with package or annual fees, so the benefit depends on your balance and rate.
Concept Overview — why it matters in Australia
- Home loans are calculated daily. Any dollar sitting in an offset or redraw effectively reduces interest.
- Offset accounts are popular in Australia because they combine savings flexibility with interest savings.
- Redraw suits borrowers who want to make extra repayments but don’t need frequent access to those funds.
- Tax implications differ: if you use redraw for personal expenses on an investment loan, that portion may lose deductibility, while offset funds avoid this issue.
Choosing between them affects not just flexibility but also long-term tax outcomes if your property use changes.
Comparison Table — Offset vs Redraw
| Feature | Offset Account | Redraw Facility |
|---|---|---|
| How it works | Separate transaction account linked to your loan. Money offsets the balance daily for interest. | Extra repayments reduce your principal; you can redraw them when needed. |
| Interest savings | Same as redraw — interest calculated on loan minus offset balance. | Same interest effect while funds remain in redraw. |
| Access to funds | Instant, like a normal account (card or transfer). | May require transfer via app or approval; some lenders limit redraw frequency. |
| Fees | Often part of package loans ($250–$400/year typical). | Usually free; basic loans with lower ongoing fees. |
| Tax treatment (investment loan) | Funds in offset don’t change the deductible loan balance — clean record. | Redrawing for personal use can contaminate deductibility on that portion. |
| Visibility | Appears as separate bank account with daily balance and transactions. | Integrated into the loan — less visible for budgeting. |
| Best for | Borrowers needing frequent access or planning to convert home to investment later. | Disciplined payers focused on faster loan reduction and lower fees. |
Who Each Option is Best For (decision criteria)
- Offset Account Ideal for homeowners with regular savings, variable income, or plans to turn their home into an investment. Offers flexible access and clear tax outcomes.
- Redraw Facility Best for disciplined borrowers who prefer simplicity, low fees, and don’t need instant access to extra repayments.
Step-by-Step: How to Choose Between Offset and Redraw
- Check your loan type: Most offset accounts are linked to variable loans; some fixed loans may not allow offset or have partial options.
- Estimate your average cash balance: If you usually keep >$10,000, offset may save more even after fees.
- Compare package vs basic loan rates: Sometimes a basic loan with redraw and a lower rate beats a higher-rate offset loan with annual fees.
- Consider future plans: If you might rent out your home, offset helps keep the loan tax-deductible.
- Ask your lender: Confirm redraw limits, offset eligibility, and any linked card or online banking fees.
Costs & Tax Considerations (Australia 2025)
- Offset account fees: Usually included in package loans ($250–$400/year).
- Redraw facility fees: Often none; some lenders may charge for manual redraws.
- Interest savings: Both reduce daily interest; offset can save more if large balances are maintained.
- Tax treatment:
- Owner-occupied loans: no difference — both save non-deductible interest.
- Investment loans: offset is safer. With redraw, any personal-use redraw portion loses deductibility.
- Joint borrowers: Offset can simplify shared budgeting since it behaves like a normal account.
FAQ (people also ask)
Which saves more interest: offset or redraw?
Both save the same amount of interest while the balance is available. The difference is in flexibility and potential tax outcomes.
Is an offset account worth the fees?
If your average balance is high enough to offset interest greater than the annual fee, yes. Otherwise, a basic redraw loan may be cheaper overall.
Can I have both offset and redraw?
Yes. Many variable loans offer both. Your regular extra repayments go into redraw, while savings can sit in the offset for flexibility.
Does an offset reduce my tax bill?
It reduces interest, not taxable income. But it helps preserve future tax deductibility if you convert your home to an investment.
Is redraw money mine?
Yes, but it's technically part of your loan. Access can be restricted or delayed, especially if your lender changes policies.
Do fixed loans have offset accounts?
Most fixed loans don’t, though some lenders offer “partial” offsets. Check the product terms.
What’s better for investment property loans?
An offset account is generally preferred for clean record-keeping and to avoid mixing personal and investment redraws.
Sources / Official References
Disclaimer
This article is for general information only and is not financial advice. Please check official government sources or consult a licensed adviser before making loan or tax decisions.