Redraw vs offset

While both a redraw facility and an offset account allow you to use your savings to reduce your loan balance, which in turn reduces the interest you pay on your mortgage and potentially allows you to pay off your home loan sooner, they do work in different ways.

An offset account works like a regular savings account, so you can transfer money in and out of it at any time, using a debit card attached to your home loan.

A redraw facility, on the other hand, isn’t a transaction account but a facility linked to your home loan. While it does allow you to make additional repayments and then withdraw funds when you need them, it’s not as flexible as an offset account.

The main differences between redraw and offset

The main difference between a redraw facility and an offset account is that the funds in your offset account are held in a separate transaction account that’s linked to your home loan. A benefit of having a separate savings account is that it makes it easier to withdraw funds.

A redraw facility, on the other hand, is a feature that is part of your home loan, which allows you to make extra repayments to your home loan account and take those funds out again if you need to. Redraw facilities often have restrictions in terms of the number of redraws you can make or the maximum amount you can withdraw in a year. There may also be a time delay between when additional funds are deposited into the home loan to when they actually become available.

Another key difference is that with a redraw account, the balance of your home loan will go down if you make regular repayments, whereas offset funds are not reduced by regular repayments.

Here’s a comparison table of the main differences between redraw and offset:

Redraw Offset
You have to make extra payments into your redraw facility if you want to access the funds. Offset works the same as a transaction account. You can access the funds at any time and don’t have to make extra repayments.
To reduce the interest on your home loan, you need to make extra payments into your redraw facility. Money in your offset account automatically offsets the interest charged, so the more money that you have in your offset account, the less interest you will pay.
To access funds from your redraw facility, you need to transfer funds out of your home loan and into a transaction account, such as your savings account. With an offset account, you’ll be able to use your debit card to withdraw funds and pay bills, providing instant access to your funds.
You can only increase the balance of your redraw facility by making extra repayments manually.  You can get your salary paid into your offset account, which means you can reduce the amount of interest charged. 
There are some restrictions to the amount and time when you can withdraw funds. There are no restrictions on access to your funds.

Redraw vs offset tax implications

There may be different tax implications if you withdraw money from your redraw account versus using the money in your offset account. For example, if you have an investment loan, you may not be able to claim on redraws for non-investment purposes, such as going on a holiday, renovating the house you live in, or buying a new car. With an offset account, you can withdraw funds without affecting the deductibility of your interest. 

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