An offset account and a redraw facility both reduce the interest you pay on your home loan, but they work differently – and for investors, the difference matters for tax.
An offset is a transaction account linked to your loan; a redraw lets you pull back extra repayments you have already made. Choosing the right one can save you thousands and keep your tax position clean.
As your Perth broker, The Finance Yogi helps you pick the feature that genuinely suits your goals.
With an offset account, the balance in that everyday account is subtracted from your loan balance before interest is calculated. Keep $20,000 in an offset against a $500,000 loan and you only pay interest on $480,000.
A redraw facility holds the extra repayments you have made above the minimum, and lets you access them later. It also reduces interest while the funds sit in the loan.
Both cut interest, but the way you access and use the money is where they differ – and that has real tax consequences for investors.
For owner-occupiers, either feature works well, and an offset is simply more flexible.
For investors, the choice is more important, because it can affect how much of your loan interest stays tax-deductible. We explain exactly how for your situation.
The flexibility of an offset makes it the go-to for most borrowers, especially if you want your savings working against your loan without locking them away.
If you are building a portfolio, see our guide on how to build a property portfolio in Perth.
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For investment loans, the interest is tax-deductible. If you pay extra into the loan and later redraw it for a personal purpose, the ATO treats that redrawn portion as a new, non-deductible loan – reducing your deduction.
An offset account avoids this entirely. The money stays in a separate account, reduces your interest, and never changes the deductible balance of the loan.
Important: tax treatment is personal, so always confirm with your accountant. We structure the loan correctly and explain it on our investment loan broker Perth page.
Not always. Some basic loans have no offset, and some charge an annual package fee for one. A redraw is more commonly included free, but with varying access rules.
The value of an offset depends on how much cash you typically hold – the more you keep in it, the more interest you save, which can justify a small package fee.
We compare loans on their full feature set, not just the headline rate. See how on our home loan broker Perth page.
The right choice depends on whether you are an owner-occupier or investor, how much spare cash you hold, and whether you value flexibility or simplicity.
We review your goals and cash habits, then recommend the structure – and the lender – that saves you the most while keeping your tax position clean.
Once we have the right structure, we arrange the loan and settlement. Estimate your interest savings with our home loan repayment calculator, or explore our finance services.
Book a free, no-obligation chat and we will structure your loan to save interest and protect your tax position.
Source: offset and redraw guidance from ASIC MoneySmart, and deductibility information from the ATO. Tax is personal – confirm with your accountant.
