Offset Account vs Redraw Facility — What’s Better for Australian Borrowers in 2025? (Full Breakdown)

 

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Compare benefits, drawbacks, tax implications & which option saves you more interest in today’s mortgage market.

For Australian homeowners and investors, choosing between an offset account and a redraw facility is one of the most important mortgage decisions you’ll make. Both can reduce interest, both put money to work, and both are common features across lenders from CBA, ANZ, Westpac, NAB, Macquarie, Bankwest, ING, Suncorp and others.

But they function very differently — and depending on where you live (Sydney, Melbourne, Brisbane, Perth, Adelaide, Gold Coast, Canberra), one option may deliver far better savings than the other.

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This guide breaks down how each feature works, which borrowers benefit the most, real examples, and 2025 lending considerations to help you choose the right structure.

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What Is an Offset Account? (Explained Simply)

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An offset account is a transaction account linked to your home loan. Whatever balance sits in this account offsets(reduces) the principal amount your lender charges interest on.

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Example

• Loan: $800,000

• Offset balance: $50,000
  → You are only charged interest on $750,000

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Key Features

• Full access to your money

• Works exactly like a regular bank account

• Maximises interest savings if you keep high cash flow

• Popular among borrowers in Sydney, Melbourne, Brisbane and Perth due to high loan sizes

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Best For

• Borrowers with high monthly cash flow

• Professionals with bonuses, commissions or business income

• Property investors (depending on tax strategy)

• Families wanting liquidity and flexibility

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What Is a Redraw Facility?

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A redraw facility lets you withdraw extra repayments you’ve made on your home loan.
Instead of keeping cash in an external account, the money sits inside your mortgage.

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Example

• Loan: $800,000

• You pay $20,000 extra into the loan
  → Interest is now charged on $780,000

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If you need the $20,000 later, you “redraw” it from your loan — but access is not as instant or flexible as an offset.

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Best For

• Borrowers who want forced savings

• People who overspend and need structure

• Those with smaller cash buffers

• Borrowers on simple loan products (often lower-fee)

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Offset vs Redraw — Key Differences (2025 Comparison)

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Feature Offset Account Redraw Facility

Interest SavingsHighModerate–High

Access to FundsInstant (EFT, card, app)Slower, sometimes limited

FeesHigher (offset package fees)Lower

Tax Implications (Investment Loans)Stronger tax advantagesCan cause deductibility issues if misused

FlexibilityVery highModerate

Best ForHigh-cash-flow borrowersStructured savers

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Which One Saves You More Money in 2025?

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With interest rates elevated across Sydney, Melbourne, Brisbane, Perth and Adelaide, offsets usually produce greater long-term savings, especially on loans above $600k.

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Offset leads when:

• You keep $10k–$200k sitting in savings

• You want liquidity

• You plan future investments

• You receive bonuses or lump-sum income

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Redraw leads when:

• You want a low-fee home loan

• You are comfortable with slower access

• You need discipline to avoid spending

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Offset vs Redraw for Investors (IMPORTANT in Australia)

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If you plan to convert your home into an investment property later — common in Sydney, Melbourne and Brisbane — your loan structure matters.

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Offset = safer for future tax deductibility

If you use redraw funds for personal use (holidays, cars, lifestyle), that portion of the loan loses tax deductibility.
An offset avoids this problem because the money never enters the loan.

This is a major reason why accountants and brokers recommend offsets for borrowers in high-value postcodes such as Vaucluse, Point Piper, Toorak, Brighton, Ascot, Clayfield, Cottesloe and Dalkeith.

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Which Should You Choose? (Simple Answer)

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Choose an Offset Account If You:

✔ Keep more than $5k–$20k in savings
✔ Earn bonuses or irregular income
✔ Want maximum flexibility
✔ May convert your home into an investment property
✔ Want easy, instant access to cash

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Choose a Redraw Facility If You:

✔ Prefer a low-fee loan
✔ Want to minimise temptation to spend
✔ Can tolerate slower access to funds
✔ Are refinancing into a basic package

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Offset + Redraw: Should You Use Both?

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Many modern loans offer both features.
A powerful strategy used by borrowers across Sydney, Melbourne, Perth, Goldcoast and Brisbane is:

Use an offset account for liquidity + build redraw for long-term principal reduction.

This hybrid approach maximises flexibility while still reducing interest.

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2025 Lending Market Insights (Australia-Specific)

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• Major banks now heavily promote offset packages with annual fees

• Online lenders (Athena, TicToc, ubank, loans.com.au) push redraw-only products to cut costs

• Investors in NSW, VIC and QLD increasingly prefer offsets for future tax planning

• Redraw restrictions vary by lender — some allow instant redraw, others delay 1–3 days

• Offset performance depends on how much money you consistently leave in the account

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Conclusion: Offset or Redraw — What’s Better?

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There is no “one size fits all”, but in most metro markets across Sydney, Melbourne, Brisbane, Perth and Adelaide, offset accounts deliver the strongest savings and flexibility, especially for borrowers with moderate-to-high cash flow.

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Redraw facilities still offer excellent value — particularly for disciplined borrowers and anyone wanting a simple, low-fee loan.

If you’re unsure which structure suits your financial profile, your income type, or your future property strategy, a personalised comparison is essential.