Offset account vs redraw vs extra repayments: what is the difference?
They all save you interest, but they behave very differently when you need the money back. Here is how offset, redraw and extra repayments compare.
Offset accounts, redraw and plain extra repayments are three ways to pay less interest on your home loan. They can produce similar interest savings, but they are quite different when it comes to accessing your money, tax, and flexibility. Here is how to tell them apart.
The shared goal
All three work by reducing the balance your lender charges interest on. Home-loan interest is calculated daily on what you owe, so any money you put toward the loan — or park against it — lowers the interest you pay.
Offset account
An offset is a everyday transaction account linked to your loan. Its balance is subtracted from your loan balance before interest is calculated, so $20,000 in offset saves the same interest as owing $20,000 less. The money stays entirely yours and fully accessible — you can spend it any time. That flexibility is its big advantage.
Redraw
Redraw lets you make extra repayments and pull them back later if needed. It reduces interest the same way, but access depends on your lender's rules — some limit redraw frequency, amounts or charge fees, and lenders can change redraw terms. There can also be tax wrinkles if the loan is (or becomes) an investment loan.
Extra repayments (without redraw)
Simply paying more than the minimum is the most straightforward option: it cuts your balance and your interest directly. The trade-off is access — without a redraw facility, that money is locked into the loan and hard to get back.
Which suits you
If you want maximum flexibility and might need the money, an offset wins. If your loan has free redraw and you are disciplined, redraw is fine and often fee-free. If you just want to smash the loan and never touch the money, extra repayments are simplest. Many lenders let you combine them.
Worked example
Say you have a $500,000 loan at 6% and $30,000 in savings. Parked in an offset account, that $30,000 means you are only charged interest on $470,000 — saving roughly $1,800 a year in interest, while the cash stays fully available. The same $30,000 as extra repayments saves the same interest, but you would need a redraw facility to get it back, and access can be subject to your lender's rules.
Model your mortgage payoff
See how extra repayments, an offset balance and a lump sum change your payoff time and interest.
This is general information, not personal advice. Loan features and redraw terms vary by lender — check your own loan's terms. See also how to pay off your mortgage sooner.
Frequently asked questions
Is an offset account better than redraw?
For flexibility, usually yes — offset money is your own transaction balance and always accessible, whereas redraw access depends on lender rules. For investment loans it is also cleaner tax-wise. Redraw can be fine if it is free and you are disciplined.
Does an offset account cost money?
Often it is part of a package with an annual fee, so check the fee is less than the interest you will save. On a large balance the saving usually wins comfortably.
Can I have both an offset and redraw?
Many loans offer both. A common approach is to keep everyday cash in the offset and make extra repayments you are happy to lock away, with redraw as a backup.
Are extra mortgage repayments tax deductible?
Not for an owner-occupied home — there is no deduction for home-loan interest or repayments. For an investment loan the interest can be deductible, which is where the offset-versus-redraw distinction matters most.