Both offset accounts and redraw facilities serve a similar purpose — they allow you to reduce the interest you pay on your mortgage by using your savings to offset the loan balance. But they behave quite differently when it comes to access, flexibility, and tax implications, and choosing the wrong one for your situation can cost you money or create unexpected complications.
An offset account is a transaction account linked to your home loan. The balance in the offset account is subtracted from your loan balance before interest is calculated. So if you have a $500,000 loan and $50,000 in your offset, you're only charged interest on $450,000. The money in the offset account is legally yours, sitting in a bank account you can access at any time — by EFTPOS, bank transfer, or ATM.
A redraw facility works differently. Extra repayments you make above the minimum accumulate as a redraw balance, and you can access this balance when needed. However, redraw is less liquid than an offset — lenders can change the terms, charge fees for redraw, or even freeze access in hardship situations. From a psychological standpoint, it's also less accessible, which some borrowers find helpful as a form of enforced saving.
For investment property owners, the distinction is critical from a tax perspective. Interest on investment loans is generally tax-deductible. If you use a redraw on an investment loan for personal purposes, you may contaminate the deductibility of that portion of the loan — a complex problem to unwind. An offset account avoids this risk entirely, because the money never enters the loan itself.
The right answer depends on how you use your money, whether the property is owner-occupied or an investment, and what your lender offers. At Amber Finance, we walk through these scenarios with you to make sure the structure of your loan works for your life. Contact us for a free loan structure review.