Home Loan Redraw vs Offset Account

When it comes to paying off your home loan, minimising the interest you’ll have to pay over your term should be the aim of the game. According to the lending indicators for the September Quarter of 2025 from the Australian Bureau of Statistics (ABS), the average home loan size for owner occupiers in Australia is $694,000. With the average owner-occupier rate of 5.51% p.a., this adds up to a monthly repayment of $3,945 and an overall interest bill of $726,132.

There are two main ways that you can cut back on the interest you’re paying: a home loan redraw facility and an offset account. It’s important to know how each of them works so you can start to build your cost-saving strategy.

What’s the difference between home loan redraw and offset accounts?

A redraw facility is one that allows you to make additional payments towards your home loan, which are then available to be withdrawn afterwards if required. In doing so, you’ll reduce your mortgage balance and the remaining loan term, therefore reducing the interest you’ll be required to pay.

When you need to withdraw funds from your redraw facility, you’ll need to submit a request to your bank. You’ll be subject to minimum and maximum withdrawal limits (often from $500 or $1,000 up to one mortgage instalment’s worth left in your account).

In contrast, an offset account is essentially a bank account attached to your home loan that stores your savings. Any money kept in an offset account reduces the interest payable on your mortgage. For example, if you had $50,000 in an offset account for your $400,000 mortgage, you’d only pay interest on $350,000.

Because it’s a bank account, you can access your funds as freely and as often as you like. It’s worth noting that while an offset account can cut down on your payable interest, it doesn’t automatically reduce your home loan debt or repayment term, as you aren’t paying money into your loan account.

Redraw vs offset accounts at a glance

	Redraw	Offset
What is it?	A mortgage feature that's part of your loan.	A bank account linked to your mortgage.
How do you save?	Make additional payments, which reduce your balance and loan term.	Storing money in your account offsets the home loan balance with interest payable.
Which mortgages offer these?	Almost all home loans with variable rates and some with fixed rates come with redraw facilities.	Most variable rate home loans offer offset accounts, but fewer fixed rate home loans do.
Associated cost?	A redraw fee is sometimes charged, but this is usually for in-branch withdrawals.	Offset account packages usually attract an annual fee that you’ll have to pay.
How is money accessed?	Withdraw from your redraw facility and move it to another account.	The same way you would with a regular bank account, such as via your debit card.
Withdrawal limits?	Accounts usually have minimum and maximum redraw limits.	Any amount of money up to the total in your account can be withdrawn.

Case study: redraw vs offset on a home loan

Angus is buying his first home and is looking to work out a strategy for paying off his mortgage with a view to minimising his interest bill. The two obvious choices for doing so are his home loan’s redraw facility and an offset account, which he can pay for as an added extra.

He has $10,000 in savings left over after taking out the $500,000, 30-year loan at 5.35% p.a. and plans to pay an additional $150 each fortnight towards the debt if he chooses to make additional payments. Angus also earns net $500 each fortnight from his job, after all expenses are deducted, which will go into a potential offset account in place of the $150.

He crunches the numbers on what that would look like for each option:

	Starting balance	Fortnightly repayment	Extra payment	Fee for use	Overall cost	Overall term length
Home loan	$500,000	$1,288	$0	$0	$1,004,658	30 years
Redraw facility	$500,000	$1,288	$150	$0	$879,275	23 years, 6 months
Offset account	$500,000 ($10,000 offset)	$1,288	$500	$395/year	$739,397	21 years, 10 months
Calculations are for illustrative purposes only and do not necessarily reflect the home loan deal you’ll receive. Overall term length for offset account reflects the time at which Angus is able to clear his debt.

As you can see, the difference between the two is stark. Even with a $395 annual fee for using his offset account, Angus would save more than $265,000 compared to the vanilla home loan and just shy of $140,000 compared to additional payments. He’d also be able to clear his debt over 18 months sooner by simply having his payslip dropped into his offset account each fortnight.

The pros and cons of redraw facilities

The pros and cons of offset accounts

Which one is better for you: a redraw facility or an offset account?

Whether a redraw facility or offset account is more useful for you comes down to your situation and preferences as a mortgage payer. Here are some scenarios where one may be more suitable than the other:

• If you want to stockpile your funds for a rainy day while reducing your interest, redraw facilities are more suited to that.
• If you need daily access to funds for depositing and withdrawing cash, an offset account can fill that role.
• If you plan to refinance your mortgage in a few years with the aim of reducing your repayments, making additional contributions into a redraw facility is the best way to do that.
• If you’re a property investor, using an offset account allows you to reliably maintain the purpose of the loan, according to Bankwest Chief Customer Officer Paul Vivian. If you take money out of your offset account, any interest charges can still be claimed if they’re used for the right purpose and produce assessable income. It’s worth seeking independent tax advice if you aren’t certain about your potential deductions.
• If you don’t have much in your savings account and can only contribute a little bit extra each pay cycle, a redraw facility may be more worthwhile.
• If you have money invested in other areas that deliver a higher return than your lender charges you in interest, using your redraw is likely to be more suitable than an offset.

It’s important to note that if you’re looking at home loans with offset accounts bundled in, you should always check the comparison rate. That will give you a clearer picture of the true cost of your loan before any interest savings are made by depositing in your account. Redraw facilities won’t impact your comparison rate, as only conditional fees apply.