How redraw facilities & offset accounts can save you money

Redraw facilities and offset accounts work in a similar way – they both effectively allow you to reduce the balance of your home loan, which reduces the amount of interest you pay.

So, how do you know which is right for you, or whether you should choose a home loan with both a redraw facility and offset account built-in? To help you decide, here we explain some of the pros and cons of both.

Redraw facilities

With a redraw facility, you can deposit spare funds into your home loan account, but still draw the money back if needed. You can either make extra repayments above the minimum requirement or throw in a lump sum every now and then.

The pros:

  • Make extra repayments to reduce the total balance of your loan and potentially pay it off sooner.
  • Use it to save money without locking up your funds.

The cons:

  • There may be restrictions on how much money can be withdrawn and when. There may not be same-day withdrawal, for example.
  • Additional fees may be applicable.

Offset accounts

An offset account is a transaction account that’s linked to your home loan, but pretty much functions as a regular everyday account. Usually, you can deposit money into an offset, make withdrawals and buy things using a debit card linked to it as required.

The main perk of an offset account is that deposited funds are offset against your loan balance, saving you in interest.

Here’s an example of how an offset account works. Let’s say you have a $100,000 loan and $10,000 in your 100 per cent offset account. Instead of paying interest on your $100,000 loan, you will only pay interest on $90,000.

In some instances, lenders may offer a partial offset option, meaning only some of the balance of your offset account is taken into consideration.

The pros:

  • Reduces the interest you pay (based on the balance of the account), while still giving you access to your money.
  • Your money is working harder for you in an offset account by cutting down your interest.

The cons

  • There may be additional charges for an offset account. However, the fees may be worth the interest savings and the added flexibility compared to redraw facilities.

Like to know more?

Deciding between a redraw facility and an offset account largely depends on how accessible you need your extra money to be and your personal circumstances.

In some cases, a combination of both may work – that is, the option to keep your spending money in an offset account and tuck funds you’re unlikely to need into a redraw facility. Speak to us to explore your options.

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Maxine Zhong
Maxine Zhong
19 October 2023
Amanda has been such an incredible support throughout our very first time going through the home loan process. Her thoughtfulness to regularly check in to make sure all our questions were answered and that all our documents were in place helped to make the whole daunting process feel seamless and easy. I could not recommend her enough - she made sure to keep us informed every step of the way and made sure all necessary documents/processes were completed well ahead of time so we never had to worry about missing any steps. She went well above and beyond her role, and I know we will definitely be coming back to her in the future, as well as recommending her to all of our networks! Thank you again, Amanda!
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Mark Nesbitt
11 October 2023
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Christine Tran
23 September 2023
Yuval handled my first ever home loan, he did such an amazing job I asked to him to refinance for me 2 years later. Yuval made everything very easy for me, and will give his best recommendation as if it was his own. Would always recommend Yuval :)
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David Petrini
25 August 2023
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24 August 2023
Greg and the team at 1st Street were fantastic all the way through the process of getting our financing sorted and buying a new home. They not only secured us the most competitive mortgage in the market but they also gave advice on a number of mortgage-adjacent questions that came up along the way. Their responsive and thoughtful guidance helped make the nail-biting process clear and calm. We would definitely recommend their services.
Gabrielle Scott-Jones
Gabrielle Scott-Jones
18 August 2023
Greg and his team gave me exceptional advice and support. They were timely and detailed in their responses and dealt patiently with me as a first home buyer and all of my questions. The lender at the bank commented on how well I was being looked after compared with other brokers in the market. I’d highly recommend 1st Street to anyone, including friends and family.
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1 August 2023
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