Redraw vs Offset Account: Make Your Home Loan Work Harder

A 2025 Guide to Choosing Between a Redraw Facility and an Offset Account

Buying or refinancing this year? Knowing the difference between a redraw facility and an offset account could shave years off your loan and thousands off your interest bill.

Both tools are still evolving as banks roll out smarter, app‑first products, so here’s the up‑to‑date low‑down.

Redraw vs Offset Account - which is going to suit you best?

What is a redraw facility?

A redraw facility is a loan option typically available on certain types of loans, especially home loans or personal loans. The facility lets you pay extra into your mortgage, and occasionally "redraw" that extra. It’s like a "savings buffer" within the loan, but the funds are technically part of the loan balance so "redrawing" is dipping back into the loan every so often when life happens.

While sitting as extra payments those funds lower your loan balance owing unless you withdraw them, so you save on interest. Because any money in the loan account is covered by the loan agreement, redrawing generally requires approval from the lender before you can access the cash, which can take days to weeks (and may have a fee). This is why this type of facility is not ideal for regular, or very urgent, cash withdrawals.

What Is an Offset Account?

An offset account is an additional day‑to‑day bank account that is linked to your loan account. When calculating the loan interest the balance in this additional account as added to the loan - that combined total is what your interest is calculated on. Think of it as a bundling process so the loan account balance and offset account balance are added together (offset) BEFORE your interest is calculated. You keep full, instant access to the money 24 ⁄ 7.

Redraw vs Offset Account Summary

Both methods are designed to reduce interest, here is a back-to-back of the details:

Aspect	Redraw Facility	Offset Account
Access to funds	Usually requires a specific request to the bank - may have delays, limits, and extra fees	Fully Accessible - instant, ATM / Online-Banking access
Interest Savings	Only while funds stay in the loan	Daily on every dollar in the account
Loan Principal	Loan balance decreases with each extra over-payment, thereby reducing interest calculated	Loan balance remains unchanged; interest savings only based on the combined total of loan balance plus offset balance
Advantages	Encourages disciplined extra repayments, while retaining access to funds Helps reduce loan term and/or repayments No need for a separate bank account	Daily interest savings on account balance Full, instant access to funds May offer tax advantages
Disadvantages	Access may be delayed or limited Possible redraw fees Withdrawing increases loan balance again	Only effective if a high balance is maintained May attract monthly fees Doesn’t reduce the loan principal or repayment amount
Ideal User	Consistent saver needing emergency buffer	Occasional saver holding larger cash balance

Which Is Better in Today’s Market?

• Choose a redraw facility if you top up sporadically and prefer forced discipline.

• Use an offset account if you hold a healthy cash buffer or want friction‑free access to every dollar.

Many borrowers combine both for maximum flexibility.

Summary

“Redraw vs Offset Account” isn’t just a technical debate – it’s your roadmap to faster mortgage freedom. Redraw rewards lump‑sum discipline, while an offset account delivers rolling, hands‑off savings. Match the feature to your cash‑flow style and watch your interest bill shrink.

Next Steps

Future Accounting help Family Businesses like you make smart, strategic decisions about how to structure debt and save interest. Whether you're buying a new home, refinancing, or simply reviewing your options, we can walk you through the pros and cons with advice tailored to your financial situation.

30-Minute Clarity Call

30

Book Now

---

Receive Future Insights - A collection of information we share over the past week...

Sign me Up

---