Offset vs Redraw: Which Saves You More in 2025-26?

What’s the difference between offset and redraw?

If you’ve got a home loan and some spare cash, you’ve probably heard about offset accounts and redraw facilities. Both reduce the interest you pay on your mortgage, but they work differently and have different rules.

An offset account is a transaction account linked to your home loan. The balance in that account is offset against your loan balance each day, so you only pay interest on the difference. For example, if you owe $500,000 and have $50,000 in your offset, you pay interest on $450,000.

A redraw facility lets you make extra repayments into your home loan and then withdraw that extra money later if you need it. The extra payments reduce your loan balance immediately, which also cuts your interest.

Both achieve the same basic goal: lower interest costs. But they’re not identical. The right choice depends on your tax situation, your discipline with money, and how easily you want to access your savings.

How offset accounts work in 2025-26

Offset accounts are popular because they’re flexible. You can deposit your salary, leave your savings there, and the money works for you every day. Most lenders offer 100% offset, meaning every dollar in the account reduces your interest.

Key features:

• Daily interest calculation – your offset balance is applied daily, so every dollar counts
• Instant access – it’s a normal transaction account with a debit card
• No tax implications – the interest saved is not considered income by the ATO
• Multiple offset accounts – some lenders let you link several accounts (e.g. separate accounts for you and your partner)

For owner-occupiers, an offset account is usually tax-free. But if you later convert your home into an investment property, the money in the offset account can reduce the interest you can claim as a tax deduction. That’s a trap many people miss.

How redraw facilities work in 2025-26

A redraw facility is simpler in concept: you pay extra into your loan, and you can ask the lender to give that money back. Most variable-rate home loans include a redraw facility, though some have restrictions.

Key features:

• Immediate loan reduction – extra payments lower your principal straight away
• Lower minimum repayment – some lenders recalculate your minimum payment after extra payments
• Potential fees – some lenders charge for redraws or limit how many you can make
• No separate account – the extra money sits inside your loan

The biggest catch: redraw is at the lender’s discretion. In theory, they can refuse a redraw request (though this is rare). Also, if you’re using redraw for tax-deductible purposes (like buying an investment property), the ATO may treat the redrawn money as a new loan, which can complicate your tax deductions.

Tax differences that matter in 2025-26

This is where offset and redraw really diverge.

Situation	Offset account	Redraw facility
Owner-occupier	No tax impact	No tax impact
Investment property	Interest saved is not deductible	Extra payments reduce loan balance, so less interest to claim
Switching to investment later	Offset balance reduces deductible interest	Redrawn money for personal use may not be deductible

If you’re an investor or plan to turn your home into an investment later, an offset account is usually better. That’s because money in an offset doesn’t permanently reduce the loan, so when you switch to investment status, the original loan balance (minus the offset) determines your deductible interest. With redraw, the extra payments permanently lower the loan, so you lose the ability to claim that interest.

Which one saves you more money?

Run the numbers through our mortgage calculator to see the difference. Here’s a realistic example:

Scenario: $600,000 loan, 6.5% interest rate, 25-year term, $50,000 in savings.

• Offset: You pay interest on $550,000. Monthly interest: ~$2,979. Over 25 years, you save about $130,000 in interest.
• Redraw: You make an extra $50,000 payment. Same interest saving, but you can’t access that money without asking the lender.

In pure dollar terms, they’re identical at the same interest rate. But offset gives you more control and better tax treatment for investors.

Practical tips for 2025-26

• Check your loan product – not all loans offer 100% offset. Some have partial offset (e.g. 50% or 80%).
• Watch for fees – offset accounts sometimes come with a monthly fee ($5–$15). Redraw is often free.
• Use offset for emergency funds – keep 3–6 months of expenses in offset, not redraw, so you can access cash instantly.
• If you’re an investor, use offset – it preserves your tax deductions if you later rent the property.
• If you’re disciplined and never touch savings, redraw is fine – but most people benefit from the flexibility of offset.

Use our mortgage calculator to compare

Plug your loan amount, interest rate, and savings into our mortgage calculator to see exactly how much you’d save with offset or redraw. The calculator shows your monthly repayments and total interest over the loan term, so you can compare scenarios side by side.

This is general information only, not financial advice.