Offset or redraw? Start with where the money sits

Australia’s cash rate is currently 4.35%, with the next RBA update due on 11 August. When rates are high, a home-loan feature matters only if the way you use it creates more value than it costs.

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Offset and redraw can both reduce interest, but the money sits in different places.

Offset account

This is a separate transaction account linked to the mortgage. On most home loans, interest is calculated daily after subtracting the offset balance from the loan balance. A $500,000 loan with $20,000 in offset is generally charged interest on $480,000.

The money remains in an account you can use for salary, bills and everyday transactions. But an offset-enabled loan may carry package fees, account fees or a higher rate. Check whether it is a 100% or partial offset.

Redraw facility

This is access to extra repayments already paid into the home loan. Those repayments reduce the loan balance, and you may be able to withdraw some later.

Redraw is not the same as an everyday savings account. Minimum amounts, fees, processing time and access limits depend on the lender and the loan terms.

If the home may become a rental later, plan before moving money. Redrawing for private use can make interest deductions and record-keeping more complex. Get registered tax advice before changing the property’s use or loan structure.

Compare four things today:

1. The average balance you can keep

2. How often you need access

3. Extra fees and any rate difference

4. Whether the home may become a rental

The useful feature is the one that fits your cash habits, total cost and future plans — not simply the one with the best name.

*General information only. This is not financial advice. Loan options and eligibility depend on your personal income, liabilities, assets and lender assessment criteria.