Offset vs. Redraw: What’s the difference?
Both help you pay less interest on your mortgage, but they differ in how you access your money and how the ATO views them for investment purposes.
Key Concepts
- Interest Savings: Both calculate interest on your Net Debt (Loan Balance - Savings).
- Tax Implications: This is the most important distinction for property investors looking to maximize deductions.
Comparison Table
| Feature | Offset Account | Redraw Facility |
|---|---|---|
| What is it? | A separate linked transaction account. | A feature inside your loan for extra repayments. |
| Access | Works like a standard bank account. | Usually requires a manual transfer. |
| Tax Impact | High flexibility; safe for future deductions. | Riskier; can "contaminate" the loan for tax. |
Why Investors Prefer Offset Accounts
If you turn your home into an investment later, the money in your offset hasn't "repaid" the loan principal. Moving those savings out to buy a new home keeps the original loan balance high, allowing for higher tax deductions. With a Redraw, the ATO may view the withdrawal as a "new loan" for personal use, potentially losing the deduction.
Pro Tip
Check your loan contract if you have a fixed-rate portion; many fixed loans have strict limits on how much you can put into an offset or redraw.
Financial Disclaimer
The information provided in this Knowledge Base is for general informational purposes only and does not constitute financial, investment, or legal advice. PropKeeper is not a financial advisor. Australian property investment involves risks, and you should always perform your own due diligence or consult with a licensed professional before making significant financial decisions.