Offset account vs redraw facility: Which is better for you?

They both have the potential to help you reduce the amount of interest you pay on your mortgage.
Dawn Teh
Written by
Dawn Teh
Ava Crawford
Reviewed by
Ava Crawford
Last updated
May 17, 2024
0 minute read
Table of contents
man playing with his baby in the kitchen in the home he purchased with a home loan with an offset account

Has your lender offered an offset account or redraw facility as a home loan feature, but you aren't sure what they're all about?

They both have the potential to help you reduce the amount of interest you pay on your mortgage. But they work in different ways. So this could impact which is better for you.

Keep reading to learn what offset accounts and redraw facilities mean in Australia so you decide which is best for your personal circumstances.

What is an offset account?

An offset account is a regular transaction bank account, except that it's linked to your home loan.

What's the benefit?

The more money you put into your offset account, the less interest you pay on your mortgage. This is because whatever is in this account offsets your home loan balance, and you'll only pay interest on the difference.

With an offset account, you can:

  • Reduce the interest (and overall amount) you pay on your home loan. Money deposited into this account offsets your mortgage balance, and you only pay interest on this difference.
  • Pay off your loan faster as you're reducing your interest.
  • Make deposits and withdrawals freely as needed. Just like a savings account, you can access your money through a debit card or ATM. You can use it to pay off credit card debt, renovate your home, or spend it on other emergency needs.

Other things to note about offset accounts:

  • Note that money in this account doesn't actually go to paying down your mortgage balance. This means it won't help to reduce your monthly repayments.  
  • You won't earn interest on offset accounts like you would with a regular savings account.
  • It may only be available on variable-rate home loans.
  • There is usually a fee associated with offset accounts. So make sure that your interest savings will be more than this cost.

How an offset account works

Let's say you have a $500,000 mortgage and $50,000 in your offset account balance. You'll only need to pay interest on the remaining $450,000 instead of the full $500,000.

Pros and cons of an offset account


  1. Lower your home loan interest payments by offsetting your offset account savings against your loan balance.
  2. Pay off your loan faster by reducing the overall mortgage amount.
  3. Flexibility and access to funds when needed. You can access this money just like you would with any transaction account.  


  1. May not always be available on all types of home loans. Some only offer offset accounts on home loans with variable interest rates.
  2. There may be extra fees in the form of a flat fee or higher interest rates.
  3. You do not earn interest on unused funds in offset accounts.
  4. Some lenders only offer partial offset accounts where only part of your offset account balance is subtracted from your home loan amount.  

What is a redraw facility?

A redraw facility allows you to make extra home loan repayments on top of your regular fortnightly or monthly minimum repayment amount.

This lowers your home loan balance along with your interest payments.

The added benefit is that you can still access these extra payments if you need them in the future.

With a redraw facility, you can:

  1. Bring down your total loan amount with additional repayments.
  2. Lower your interest payments as you lower your loan balance.
  3. Access money in your redraw account in the future if you need it for emergencies or other uses.  
  4. Pay off your loan in a shorter period of time.

Other things to note about redraw facilities:

  • There's less flexibility when accessing funds in your redraw facility. Some lenders have minimum redraw amounts, and it could take longer to access these funds.
  • You can make additional payments in regular smaller amounts or as a lump sum.
  • Some lenders only offer redraw facilities on variable-rate home loans. In this case, you will need to wait till the end of your fixed-rate loan term before you can apply for a redraw facility.

How a redraw facility works

Let's say your minimum monthly repayment on your home loan is $1,000.

You choose to pay an extra $100 a month (going into your redraw facility). This adds up to $1,200 in a year.

The extra $1,200 will still be available for you to withdraw later. You can use it in emergencies or for other reasons like home renovations.

You'll also benefit from paying lower interest rates on your loan as you've reduced your loan balance.  

Pros and Cons of redraw facilities


  1. Reduce your overall debt as you make extra home loan repayments.
  2. Lower your interest payments as you pay off more than your minimum repayments.
  3. Still maintain access to the extra repayments if needed (e.g. in an emergency).
  4. Pay off your home loan faster!


  1. Fees may apply when accessing the funds in your redraw facility account.
  2. There may be restrictions on how much money you can access in your redraw facility.
  3. May not be available on fixed-rate loans (this varies with each lender).
  4. Break costs may apply if you make additional payments over a certain amount.

What is the difference between an offset and a redraw facility?

While both of these options help you save on your home loan, they do have some key differences.

1. Structure

With an offset account, you can have a separate account where you can deposit extra funds, and the balance of this account is used to offset the interest on your mortgage. This lets you benefit from interest savings without actually bringing down your home loan balance.

On the other hand, a redraw facility allows you to make additional repayments on your total home loan balance. This means you're not only reducing the interest but the actual loan balance as well.

2. Flexibility

You can access money later from both your offset account and redraw facility if needed.

But withdrawing money from your redraw facility won't be as flexible.  

You can access money in your offset account just like you would with a regular transaction account. You can nominate this account to receive your salary, access funds through an ATM, and use a linked debit card for payments.

With redraw facilities, it's not convenient for daily transactions (you won't have a debit card), and there may be restrictions on the amount you can redraw.

However, this could also be seen as a positive for some people who want to prevent themselves from taking out money for unnecessary spending.

3. Tax implications

If you decide to make your home an investment property, the interest charged on that loan would be tax deductible. This will not be so on a loan where the home is owner-occupied.

Let's say you made extra repayments through a redraw account while still living in it; this means the loan balance is smaller. As a result, you've also reduced the amount of debt that would qualify for tax deductions.

In such cases, an offset account might have been more beneficial.  

It's best to speak to a financial planner if you plan on purchasing property for investment purposes. It could affect whether an offset account or redraw facility is better for you.  

How do you set up an offset account or redraw facility?

Many Australian banks and lenders offer offset accounts and redraw facilities to their customers.

This applies to big banks or smaller, more specialised lenders.

Speak to your lender if you have any questions about setting up an offset account or redraw facility.

The lowdown: Is it better to have an offset account or a redraw facility?

Offset accounts and redraw facilities are both great options for diligent savers. But the best one for you will depend on your individual needs as a borrower.

If you're looking for flexibility and easy access to your funds, an offset account is likely your best bet.

However, if you're more focused on paying off your principal sum as quickly as possible, a redraw facility might be the way to go.


What is the best home loan option?

No one home loan option will suit every person.

The main notes of importance are that you do your research, read the product disclosure statement (PDS) thoroughly, and consult with a financial advisor or mortgage broker if required.

If you are a first-time home buyer, a single parent, or buying in a regional area, it may be worth looking into government schemes to allow easier access to the property.

Are there any options for home loans with no deposit?

If you have no deposit, you may be more limited in home loan options.

Guarantor loans allow a loved one or family member to use the equity in their property for you to borrow against. Guarantor loans allow you to borrow a greater amount of money — up to 110% of the value of the property. This can be helpful when it comes to upfront costs like stamp duty.

Another option for those with generous friends and family can come in the form of a gifted deposit. This can either stand alone as your house deposit or can top up any deposit that you have already.

If you do receive a gifted deposit, be prepared to demonstrate genuine savings and a strong credit history as a way of proving you will be able to make your monthly repayments. You may also need to prove that the money was gifted in the application process (to prevent people from using money from personal loans or credit cards are their deposits)!

What is loan-to-value (LVR)?

LVR is the loan-to-value ratio of your home loan. That is the amount that you borrow to the amount of deposit that you have paid. In refinancing, this can also refer to your home equity.

Home loans with an LVR of under 80% (a deposit of 20% or greater) tend to be seen as lower risk by lenders, lower interest rates. You tend to have more home loan options with a higher deposit.

Home loans with an LVR of above 80% can do the reverse. It can be harder to gain approval, and interest rates can be higher.

How does my deposit impact my home loan amount?

The bigger your deposit is, the less money you will need to borrow.

It stands to follow that the more money you are able to use as a deposit, the lower your loan amount will be. Conversely, the smaller your deposit, the larger your loan will be.

This article is intended to be general in nature and is not personal financial product advice. It does not take into account your objectives, financial situation, or needs. In particular, you should seek independent financial advice and read the relevant product disclosure statement (PDS), or other offer documents before making an investment decision in relation to a financial product (including a decision about whether to acquire or continue to hold).
Prepared by OwnHome Services Pty Ltd ACN 664 492 059. This information does not take your personal objectives, circumstances or needs into account. Always read the disclosure documents for products and services before deciding on a product or service, and consider seeking independent legal, financial, taxation or other advice for your unique circumstances.

Latest articles

Start your pathway to homeownership
Make yourself at home! Log in and track your process. Or create an account in minutes and join thousands of Aussies already using OwnHome.