By Jason Given · 2026-05-06 · 8 min read
Both an offset account and a redraw facility reduce your loan's effective balance for interest calculation purposes. If you have a $500,000 loan and $50,000 sitting in an offset account, you pay interest on $450,000. If you have made $50,000 in extra repayments (available via redraw), you also pay interest on $450,000. The maths is the same.
So where does the real difference lie?
An offset account is a transaction account linked to your home loan. Every dollar in the account is subtracted from your loan balance before interest is calculated. You can access the money freely — it is your bank account.
Example: $500,000 loan at 6.0%. Offset account balance: $60,000. Interest charged on $440,000. Annual interest saving: approximately $3,600 versus no offset. Over 5 years, that is $18,000+ in interest saved — and you can spend the $60,000 tomorrow if you need to.
Key benefit of offset: The money is always yours, always accessible, and never mixed with the loan balance. This is critical for investors.
Redraw lets you access extra repayments you have made above the minimum. If your minimum repayment is $3,000/month and you pay $4,000, that extra $1,000 is available to redraw. The interest saving works the same as offset — but with one critical caveat.
Redraw money has 'gone into' the loan. It reduces your loan balance. When you redraw it, you are effectively re-borrowing — and the purpose of that re-borrowed money matters for tax.
This is where many investors make a costly mistake.
Scenario: You have an investment property loan and you make $30,000 in extra repayments via redraw. A year later, you redraw $30,000 for a personal holiday. The ATO may disallow the interest deduction on that $30,000 component permanently — even though the loan is on an investment property.
Why? Because the purpose of the redrawn funds is personal, not investment. The interest deductibility follows the purpose of the funds, not the security.
Investor rule: Never put surplus funds into redraw on an investment loan. Always use an offset account. The money in offset never becomes part of the loan — its purpose is always 'your savings', keeping deductibility clean.
For pure owner-occupiers with no investment property, the practical difference is small. Offset gives slightly more flexibility (instant access, no lender involvement). Redraw is sometimes cheaper — some lenders charge offset account fees of $10–$15/month that can erode the benefit on smaller balances.
A useful rule: if your savings balance is under $20,000, the offset fee may not be worth it. Over $30,000, the offset benefit generally outweighs any fees. Lendology compares the all-in cost including account fees when recommending loan products.
Many borrowers end up with both: an offset account for their accessible savings buffer, and a redraw facility as an emergency backstop. This works well for owner-occupiers. For investors, the preference remains offset only for any surplus funds.
Lendology selects loans based on features that match your situation — not just rate. If offset vs redraw matters to your tax position, we factor that in from day one. Book a loan structure review →
The interest saving is mathematically identical — both reduce the balance on which interest is calculated. The critical difference is tax treatment for investors and access flexibility. For owner-occupiers with no investment property, the practical difference is minimal. For investors, putting savings in a redraw on an investment loan can destroy the tax deductibility of future redraws — offset avoids this entirely.
Yes — many loans offer both. For owner-occupiers, you might keep your savings in an offset while also having redraw available as an emergency buffer. For investors, the preference is strongly for offset over redraw for any extra repayments. Talk to Lendology about the specific loan features of products we can access for your situation.
Not always — but it is risky. If you make extra repayments on an investment loan and then redraw for personal use (a holiday, car, anything non-investment related), the ATO may disallow the interest deduction on the redrawn amount. You must track purpose carefully. Offset is cleaner because the money in the offset account is never mixed with the loan balance.
Lendology works with 60+ lenders and can identify which products offer true 100% offset, which charge offset account fees, and which have restrictions. Not all offset accounts are created equal — some are partial offsets, some charge monthly fees that erode the saving. We compare these features as part of every loan assessment.