Mortgage offset account versus redraw

A 100% offset account is a transaction account linked to the loan. The lender generally calculates interest on the loan balance less the eligible offset balance. If the loan is $500,000 and the offset contains $40,000, interest is commonly calculated as though the balance were $460,000 while the money remains in the account.

Some products provide only a partial offset, limit eligible accounts or charge a package fee. The benefit therefore depends on the average balance maintained, not the highest balance briefly shown during the month.

Redraw is access to extra repayments previously made into the loan, subject to the lender's rules. Extra repayments reduce the loan balance directly. Access may be limited by minimum amounts, processing times, channel restrictions or product changes, and the lender may change redraw availability under the contract.

An offset account keeps the cash legally separate from the loan balance. Redraw records money that has already been paid into the loan. That difference can matter for administration and may matter for tax if a former home later becomes an income-producing property. Personal tax consequences should be checked with a registered tax professional.

Estimate the interest saving from the balance you can realistically maintain, then subtract higher interest rates, annual package fees and account fees associated with the offset product. A feature that saves $600 of interest but costs $500 more each year has a much smaller practical benefit than the headline saving suggests.

Choose the structure after comparing complete product costs and how you manage cash, not because one feature is universally superior. Keep written records of transfers and loan purposes, particularly when refinancing, splitting a loan or changing how a property is used.