Offset or redraw: where your money actually goes

Put fifty thousand dollars into a full offset account and your interest is calculated on fifty thousand less. Put the same fifty thousand into redraw and your interest is calculated on fifty thousand less. On the interest line, they are twins. Everywhere else, they are not related at all.

Ownership is the whole difference

Money in an offset account is still your money, sitting in a transaction account that happens to be linked to the loan. Money in redraw has already been paid to the lender; what you are looking at is permission to borrow it back. Permission can be changed, reduced, delayed or withdrawn — and during periods of stress, lenders have done all four.

• Offset funds are accessible the same way any transaction account is: card, transfer, ATM, immediately.
• Redraw access can carry a minimum amount, a daily limit, a processing delay, or a fee.
• A lender can reduce an available redraw balance. It cannot reduce your offset balance.
• If the property ever becomes an investment, offset preserves the deductibility of the loan in a way redraw does not.

“Every client who has ever thanked me for an offset account thanked me on the day they needed the money, not the day we set it up.”

When redraw is genuinely the better answer

Offset usually carries a package fee, often a few hundred dollars a year. If your surplus balance is small and likely to stay small, that fee can outweigh the interest saved, and a basic loan with redraw is simply cheaper. The break-even is easy to calculate and it is worth calculating rather than assuming.

Offset Accounts

The short version: if you will ever hold a meaningful buffer, or the property might one day be rented out, take the offset. If the buffer will be thin and the home will stay a home, take the cheaper loan and keep the fee.