Understanding Your Options
When you have a home loan, you may have access to an offset account, redraw facility, or both. Understanding the differences helps you choose the right strategy.
Offset Account
An offset account is a transaction account linked to your mortgage. The balance reduces the principal your interest is calculated on.
Example: $500,000 loan with $50,000 in offset = interest calculated on $450,000
Pros
- Money is easily accessible
- Funds are clearly separate from the loan
- Better for investment property tax purposes
- No risk of losing access to funds
Cons
- May have monthly account fees
- Often only available on variable rate loans
Redraw Facility
A redraw facility lets you access extra repayments you've made on your mortgage.
Example: If you've paid $10,000 extra on your loan, you can withdraw that $10,000 if needed.
Pros
- Usually no additional fees
- Available on more loan products
- Encourages making extra repayments
Cons
- Funds "belong" to the loan
- Lender can restrict access
- May have minimum redraw amounts
- Tax implications for investment properties
Which Should You Choose?
Choose offset if:
- You have an investment property (tax benefits)
- You want guaranteed access to funds
- You like keeping savings separate
- You can afford the account fees
Choose redraw if:
- You want to minimise fees
- You're on a fixed rate loan
- You don't need frequent access
- It's your home (not investment)
The Tax Trap
For investment properties, using redraw for personal expenses can create tax complications. Money redrawn may not be tax-deductible, even if it was previously extra repayments. Offset accounts avoid this issue entirely.