Offset vs Redraw: Understanding Key Loan Features

Home loans often come with features that can help you save money on interest and repay your debt faster. Two commonly‑confused features are offset accounts and redraw facilities.

Offset accounts

An offset account is a transaction account linked to your home loan. The money sitting in the account is “offset” against your loan balance when interest is calculated. For example, if you owe $400,000 and have $20,000 in an offset account, you pay interest on $380,000 instead of the full balance. CommBank explains that offset accounts operate like everyday accounts (you can deposit and withdraw funds with a debit card), but there may be account‑keeping fees or higher interest rates on the loan commbank.com.au.

Redraw facilities

A redraw facility lets you withdraw extra repayments you’ve made on your loan. Money.com.au notes that redraws are a feature of the loan rather than a separate account and typically don’t offer the same day‑to‑day access as an offset account money.com.au. Online redraws are usually free, but some lenders charge a fee for over‑the‑counter redraws.

Which is better?

• Flexibility:  Offset accounts provide instant access via a debit card, making them ideal if you frequently tap into your savings. Redraw facilities may require transferring funds to another account.

• Cost:  Offset accounts sometimes incur monthly fees. Redraw facilities are often free for online transactions.

• Tax considerations:  For investors, interest deductions may be affected differently depending on whether you use an offset or redraw. Seek professional advice.

  
  

Your broker can help you weigh these features based on your budget, savings habits and tax situation.