Offset Account vs. Redraw Facility
Offset Account vs. Redraw Facility: Which Saves You More on Your Home Loan?
When choosing a home loan, many borrowers come across two popular features: Offset Accounts and Redraw Facilities. Both can help you save on interest and pay off your mortgage faster, but they work differently. Understanding their differences can help you choose the best option based on your financial goals.
What Is an Offset Account?
An Offset Account is a separate transaction account linked to your home loan. The balance in this account offsets your loan principal, reducing the amount of interest you pay.
✅ Key Benefits of an Offset Account:
- Reduces the interest charged on your home loan
- Allows easy access to your money via debit card, transfers, and bill payments
- Works like a regular bank account, letting you deposit salary and savings
- Tax benefits for future investment properties
What Is a Redraw Facility?
A Redraw Facility lets you withdraw extra repayments you’ve made on your home loan. Instead of sitting in a separate account, these additional payments reduce your loan balance, lowering interest costs.
✅ Key Benefits of a Redraw Facility:
- Helps you pay off your mortgage sooner by making extra repayments
- Allows limited access to extra funds when needed
- Typically available on variable-rate home loans
Offset Account vs. Redraw Facility: Key Differences
| Feature | Offset Account | Redraw Facility |
|---|---|---|
| Account Type | Separate transaction account | Feature within your loan |
| Access to Funds | Instant access via debit card, transfers, bill payments | Limited access; may have minimum redraw amounts |
| Interest Savings | Reduces loan interest by offsetting the loan balance | Lowers interest by reducing principal |
| Flexibility | High — works like a bank account | Lower — funds may take time to access |
| Tax Benefits | Better for investment properties | May affect tax deductibility if withdrawn for personal use |
Which One Is Right for You?
- Choose an Offset Account if you want maximum flexibility, easy access to your money, and potential tax benefits.
- Choose a Redraw Facility if your priority is paying off your loan faster while keeping some access to extra repayments.
Final Tip
If you're planning to turn your home into an investment property, an Offset Account is often the better option to maintain tax deductibility on interest payments. Always consult a mortgage broker or financial advisor for personalized advice.
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