Offset Accounts & Redraw Facilities — Fact Sheet
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This fact sheet is reproduced for general information purposes only.
It is an industry-standard explanatory document and has not been authored by Model Mortgages.
It does not provide personal advice.
Offset accounts
A mortgage offset account is a savings or transaction account that can be linked to your home loan.
The balance in this account offsets daily against the balance of your home loan before interest is calculated.
An offset account can help reduce the interest you pay on your home loan and may cut years off the loan term.
How offset accounts work
If you have a home loan balance of $500,000 and $10,000 in a 100% offset account, you will only pay interest on $490,000.
Because home loan interest is calculated daily, every dollar held in an offset account can reduce interest costs. This means more of your repayment goes towards reducing the principal, which may help you repay your loan faster.
Types of offset accounts
- 100% offset account
- The full balance of the offset account is applied against the home loan balance before interest is calculated.
- Partial offset account
- Only part of the offset account balance is applied against the loan balance. This is generally less effective than a 100% offset account.
Benefits of an offset account
- Easy to manage — income deposited into the account immediately reduces interest charged on the loan.
- Convenience and flexibility — the account operates like an everyday transaction account.
- Some lenders allow multiple offset accounts linked to one home loan, which can help manage savings for specific goals.
- Offset accounts are usually part of a home loan package that includes an annual fee, but discounted interest rates and other benefits may still result in overall savings.
- Offset accounts may be more effective than savings accounts, as the interest saved on a home loan is often greater than interest earned on savings.
Things to consider
- Offset account features vary between lenders and loan types. Not all offset accounts are 100%, and some fixed-rate loans may only allow offset for a limited period or under certain conditions.
- Monthly or annual fees may apply. It is important to consider total package costs to determine whether an offset account provides a net benefit.
- Some lenders require a minimum balance to be maintained in the offset account.
- You should weigh the advantages and costs carefully to decide whether an offset account suits your circumstances.
Offset accounts and investors
Investors may be able to claim a tax deduction for interest paid on an investment property loan if the loan funds are clearly used for investment purposes, subject to ATO rules.
Using an offset account may allow investors to:
- reduce interest on an owner-occupied loan without affecting tax deductibility
- withdraw funds for personal use while maintaining deductibility on the loan
- build a cash buffer that may later be used for an investment purchase
Funds deposited into an offset account can usually be withdrawn at any time.
Redraw facilities
A redraw facility is a loan feature usually available with variable rate home loans and some fixed rate loans.
It allows you to access extra repayments you have made on your home loan.
To use a redraw facility, you must first make repayments above the minimum required amount.
How a redraw facility works
If your minimum repayment is $700 per month and you pay $900 per month for 12 months, you will have made $2,400 in extra repayments.
A redraw facility allows you to access this extra $2,400.
Benefits of a redraw facility
- Access to funds
- Useful for borrowers who want an emergency buffer but do not require instant access to funds.
- Savings
- Extra repayments reduce interest in the same way as an offset account, often more effectively than a savings account.
- Interest and tax benefits
- Interest saved on a home loan is not taxable, whereas interest earned on savings may be taxable. Extra repayments also help build equity.
Things to consider with redraw
- Some lenders charge a one-off activation fee for redraw facilities.
- Fees may apply each time funds are redrawn.
- Limits may apply to the number of free redraws per year.
- Minimum and maximum redraw amounts may apply, with some lenders setting minimum redraws as high as $5,000.
- Redraw access may not be immediate and is often processed overnight.
Redraw versus offset
Choosing between an offset account and a redraw facility depends on how accessible you need your funds to be and the fees involved.
- Offset accounts provide everyday access and convenience.
- Redraw facilities may suit borrowers who prefer discipline, as extra repayments are less accessible.
An offset account is a separate deposit account, while a redraw facility is a feature attached to the loan.
It is possible to use a combination of both.
Disclaimer
The information provided in this fact sheet is not legal, taxation, or financial planning advice.
It has been prepared without considering your objectives, financial situation, or needs.
All loan products are subject to lender criteria and approval. Fees, terms, and conditions apply.
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