Offset and redraw are two of the best interest-saving tools on a home loan — and two of the most confused. They both reduce the interest you pay, but they're not the same thing, and using the wrong one (especially on an investment loan) can cost you. Here's the plain-English version.
What an offset account is
An offset is a regular transaction account linked to your home loan. Whatever sits in it is "offset" against your loan balance, so you're only charged interest on the difference. Park $30,000 in your offset against a $600,000 loan, and you pay interest as if you owed $570,000 — but the $30,000 is still yours, fully accessible any time.
- Your savings stay your savings — withdraw them whenever, no questions.
- Run your salary through it and every dollar works for you until you spend it.
- Cleaner for investment loans (keeps the loan balance — and its deductibility — untouched).
What redraw is
Redraw is different: it's the extra repayments you've already made on the loan, which the lender lets you pull back out if you need them. It also saves interest (because your loan balance is genuinely lower), but the money lives inside the loan, not in a separate account.
- Great for disciplined saving — the money is a little less "tempting" to spend.
- Access can be slower and occasionally restricted by the lender.
- On investment loans, redrawing can muddy the tax-deductible portion — a common trap.
Same goal, different mechanics: offset keeps your cash beside the loan; redraw puts it inside the loan. For flexibility and for investors, offset usually wins.
Rule of thumb
Want flexibility + an investment property? Offset.
Owner-occupier who wants to "set and forget" extra repayments? Redraw can work — but offset still usually edges it.
Getting it set up right
Not every loan has a genuine offset, some charge for it, and the tax angle on investment loans is easy to get wrong. That's where structure matters — I'll match you to a loan with the right feature for your goals, set it up properly, and (for investors) coordinate with your accountant. Run the numbers on the repayments calculator to see how extra funds shorten your loan.