If you’re looking to get more out of your home loan, chances are you’ve come across terms like offset account and redraw facility. While both can help reduce the amount of interest you pay and potentially shorten your loan term, they operate in different ways and understanding those differences can help you make smarter decisions about your mortgage.
As mortgage brokers, we often see homeowners unsure which feature suits them best. So let’s break it down.
What Is an Offset Account?
An offset account is a transaction account linked to your home loan. The balance in the offset account is “offset” daily against your mortgage balance, and interest is only charged on the difference.
📌 Example:
If you owe $400,000 on your loan and have $50,000 in your offset account, you’ll only be charged interest on $350,000.
You can deposit your salary, savings, or extra funds into the offset account and still access that money whenever you need it, just like a regular everyday account.
What Is a Redraw Facility?
A redraw facility lets you make extra repayments directly into your home loan and withdraw (or “redraw”) those funds later if needed. It’s a handy way to reduce your loan interest while still having access to surplus funds.
📌 Example:
You make an extra $20,000 in repayments on your mortgage. That money reduces your loan balance and the interest you pay, but you can access it later via redraw, subject to your lender’s conditions.
What’s the Key Difference?
- Access to Funds
Offset accounts provide immediate, flexible access to your money via EFTPOS, online banking, or a debit card. Redraw facilities may have delays or limits on withdrawals, and some lenders charge fees or impose minimum redraw amounts. - Loan Structure
Offset accounts are linked to your home loan but exist as a separate account. Redraw is part of your loan account, which can make tracking funds a little less straightforward. - Discipline vs Flexibility
Redraw can help borrowers stay disciplined, as it’s not as easy to access. Offset accounts offer more flexibility but can tempt some people to dip into savings.
Which One Should You Choose?
It depends on your goals and how you manage money:
- If you like having ready access to funds and actively manage your cash flow, an offset account might suit you.
- If you prefer less temptation to spend your savings and are focused on paying down your loan faster, redraw could be the better fit.
Some lenders offer both, giving you the flexibility to choose how you save.
Talk to a Mortgage Broker First
Not all home loans come with offset or redraw options and the rules, fees and access can vary between lenders. At LJ Mortgages & Finance, we help clients compare the fine print across a wide range of lenders and loan products to ensure you’re getting the right features for your lifestyle and goals.
Let’s Find What Works for You
Whether you’re refinancing, upgrading, or buying your first home, having the right loan features in place can save you thousands over the life of your loan. If you’re unsure whether an offset account or redraw facility is right for you, I’m here to help.
Book a no-obligation appointment today and let’s build a home loan strategy that fits your needs.