When you make extra repayments on your home loan, you have effectively two ways to access those funds if you need them later: a redraw facility or an offset account. Both reduce your loan balance and therefore your interest charges, but they differ in important ways — particularly for property investors where the tax treatment matters. Understanding both features will help you choose the right structure for your loan.
How a Redraw Facility Works
A redraw facility allows you to access the extra repayments you have made on your home loan — that is, payments above the minimum required amount. If you have paid an extra $20,000 onto your loan, your redraw facility holds that $20,000 as accessible funds. When you access them, the loan balance effectively increases back to where it was before the extra repayment.
Redraw is available on most variable rate home loans and some fixed loans (with caps). Access can be via online banking, branch, or phone — though some lenders impose minimum redraw amounts and processing delays. There is no separate account; redraw funds sit within the loan account itself. While the funds are undrawn, they reduce your loan balance and the daily interest calculation.
Redraw Is Not Guaranteed to Be Available
Technically, a lender can restrict or withdraw redraw access in certain circumstances — for example, if the property value falls or your financial situation changes significantly. While rare in practice, redraw funds do not have the same legal accessibility as funds in a transaction account. If accessibility is important, an offset account is more reliable.
How an Offset Account Differs from Redraw
An offset account is a separate transaction account — you have full, unrestricted access to the funds at any time, like a regular bank account. There is no loan balance change when you deposit or withdraw from an offset account. The balance simply reduces the interest calculation each day it sits in the account.
Because the offset is a real bank account, your funds maintain their full liquidity and legal accessibility. You can use a debit card, make BPAY payments, and set up direct debits — exactly as you would with any transaction account. The interest saving is continuous and automatic, with no need to manually manage extra repayments.
Redraw vs Offset: Which Is Better for Your Situation?
For owner-occupiers, the choice between redraw and offset is primarily about accessibility and preference. Both achieve the same mathematical interest saving. However, offset accounts offer superior flexibility and access, making them generally preferable for most owner-occupiers. Redraw is a reasonable alternative if your lender charges a high monthly fee for an offset account — check whether the fee outweighs the benefit.
For property investors, the distinction is critically important from a tax perspective. Interest on investment loans is generally tax deductible. If you use an offset account linked to your investment loan to park personal savings, you reduce the loan's deductible interest — which may not be the most tax-efficient approach. If funds from your investment loan's redraw are used for private purposes (not the investment), this can contaminate the loan's tax deductibility. Speak with a tax accountant who understands property investment before choosing your loan structure.
| Feature | Redraw Facility | Offset Account |
|---|---|---|
| Interest saving mechanism | Reduces loan balance (extra repayments) | Reduces daily interest calculation |
| Accessibility | Within the loan — may have delays | Separate account — instant access |
| Legal status | Part of the loan contract | Separate deposit account |
| Available on fixed loans | Some (capped extra repayments) | Rarely |
| Tax impact (investor) | Drawing back increases loan balance (complex) | Reduces deductible interest while offsetting |
| Best for | Borrowers focused on paying down loan | Borrowers who value flexible access |
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About the Author
Sakib Manzoor
Senior Finance Wellness Expert
Sakib Manzoor is the founder of Secure Finance and brings extensive experience in Australian mortgage broking and financial wellness. Specialising in helping clients achieve their property finance goals through personalised strategies and expert guidance, Sakib is FBAA accredited and committed to providing clear, actionable advice. All content is written to meet Australian regulatory standards and is regularly updated to reflect current market conditions.