Offset or redraw: what to weigh up as rates climb
Both park spare cash against your loan and shrink the interest bill. The difference is access, tax treatment, and what your lender quietly does with the balance. Here's how to choose.
Every dollar sitting against your home loan — whether through an offset account or redraw — earns you a return equal to your mortgage rate. With rates climbing, that return has become the best risk-free yield most Australians can access. The question is which mechanism suits your setup.
Offset accounts
An offset is a transaction account linked to your loan. The balance offsets your loan principal for interest calculations, but the money stays legally separate from the loan. You can move it in and out like any everyday account.
Best for:
- Salary deposits and routine spending — every dollar works while it sits there.
- Investors who want to preserve the tax-deductibility of investment loan interest.
- Anyone who values liquidity above all else.
Watch for: package fees. Lenders sometimes charge $300–400 a year for an offset feature. Run the maths on whether your balance justifies it.
Redraw facilities
Redraw lets you make extra repayments and then pull them back later. The extra payments live inside the loan itself — they're a buffer against principal, not a separate account.
Best for:
- Owner-occupiers who don't need daily access to the balance.
- Anyone who finds the friction of redraw helpful (it's harder to dip into).
- Borrowers on basic loan products without package fees.
Watch for: lender discretion. Banks can change redraw terms, freeze access, or apply withdrawal limits. Read the fine print.
The tax wrinkle that catches investors
This one trips people up. If you redraw money from an investment loan and use it for personal purposes (a holiday, a new car), you've contaminated the loan and lost the deduction on that portion. Offsets sidestep this entirely — moving cash in and out of an offset is just a bank transfer, not a redraw event.
If there's any chance you'll use the property as an investment in the future — or any chance you'll switch your current investment property to a PPOR — default to offset.
Our rule of thumb
- Owner-occupier with simple finances → redraw, no package fee.
- Anyone with investment exposure or plans to invest → offset.
- High everyday balance + variable rate → offset, even with the fee.
If you're not sure which structure your current loan has, that's a sign it's time for a review.
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