Offset Accounts vs. Redraw Facilities: What’s Best for Your Loan Strategy?

When it comes to managing your home loan, even small decisions can have a big impact on how much interest you pay, and how flexible your finances feel. Two of the most common features borrowers hear about are offset accounts and redraw facilities. But what exactly are they, and which one makes more sense for your situation?

Let’s break it down, so you can choose the loan structure that fits your lifestyle, goals, and spending habits.

Offset-Accounts-vs-Redraw-Facilities-Whats-Best-for-Your-Loan-Strategy.

What Is an Offset Account?

An offset account is a transaction account that’s linked to your home loan. The money you keep in this account doesn’t earn interest, instead, it offsets the balance of your loan when your lender calculates the interest you owe.

Example:

If your loan is $600,000 and you have $30,000 in your offset account, you’ll only pay interest on $570,000.

Key Features:

  • Everyday access: You can use your offset account like a regular bank account (ATM card, online banking, etc.)
  • Immediate benefit: Every dollar sitting in your offset reduces your loan interest daily
  • Helps reduce interest & loan term: The more you leave in, the more you save

Best for:

  • People with regular income and savings buffers
  • Those who want full access to their funds without touching the loan
  • Budgeters who deposit salary into their offset and use it to cover bills and expenses

What Is a Redraw Facility?

A redraw facility lets you make extra repayments on your home loan, and then “redraw” those funds later if you need them. You’re essentially ahead on your mortgage, and the bank allows you to access the surplus.

Example:

If your required repayment is $2,000 per month and you consistently pay $2,500, after a year you’ll have $6,000 in available redraw.

Key Features:

  • Access to extra repayments: You can withdraw funds you’ve paid above the minimum
  • Reduces your interest: Extra repayments lower your principal, reducing interest
  • Some restrictions may apply: Some lenders limit redraw amounts or access times

Best for:

  • People who want to pay off their loan faster, but still have funds to fall back on
  • Borrowers comfortable not accessing the money day-to-day
  • Those who don’t need transactional features like cards or bill payments

What’s the Difference?

While both offset accounts and redraw facilities help you save on interest and pay off your loan sooner, they work in different ways, and suit different types of borrowers.

Access:
Offset accounts act like a regular everyday account. You can deposit and withdraw money freely, use a debit card, set up direct debits, and more. Redraw facilities, on the other hand, only give you access to the extra repayments you’ve made on your loan, and there may be limits or delays when you want to access those funds.

Interest Savings:
Both features help reduce the amount of interest you pay, but they do it differently. Offset accounts reduce the interest calculated by offsetting your loan balance. Redraw facilities reduce the loan principal directly, which also reduces interest.

Spending Habits:
Offset accounts are more flexible, but that also makes it easier to dip into your savings. Redraw facilities encourage discipline, you’re less likely to touch the money since it’s not in your everyday transaction account.

Everyday Use:
Offset accounts can be used just like your normal bank account, great if you want to consolidate your banking. Redraw facilities are purely for extra repayments, you won’t be using them to buy groceries or pay bills.

Loan Balance Impact:
Offset accounts don’t actually reduce your loan balance, they just reduce the amount of interest charged. Redraws do reduce your loan balance because they’re treated as additional repayments.

Which One’s Right for You?

Choosing between an offset account and a redraw facility really comes down to your habits and goals.

Go for an Offset Account if:

  • You want full flexibility over your money
  • You have savings or emergency funds that you still want to keep accessible
  • You prefer to use your home loan account like a bank account

Choose a Redraw Facility if:

  • You’re focused on reducing your loan fast
  • You’re happy to “set and forget” your extra repayments
  • You want some safety net access, but don’t want to dip into it easily

How BrokerCo Can Help

At BrokerCo, we help you understand the pros and cons of every feature, and match you with lenders who offer the flexibility you need. Whether you’re saving for a new baby, investing in property, or prepping for retirement, we’ll guide you through:

  • Choosing between offset vs redraw
  • Setting up split loans if needed
  • Refinancing to unlock better features
  • Avoiding fees or restrictions you didn’t see coming

We’re not tied to any one bank, so our advice is all about what works best for you.

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