Choosing between an offset account and a redraw facility is one of the most practical financial decisions a property investor makes. Both reduce the interest you pay on your mortgage, but they work differently — and for investment properties, the tax implications can be significant.
What Is an Offset Account?
An offset account is a transaction account linked to your mortgage. The balance in the account is offset daily against your outstanding loan balance, reducing the interest charged. You still have full access to the funds at any time.
For example, if your investment loan is $600,000 and you hold $50,000 in an offset account, you only pay interest on $550,000.
What Is a Redraw Facility?
A redraw facility allows you to make extra repayments on your mortgage and then withdraw (redraw) those funds later if needed. The extra repayments reduce your loan balance, lowering your interest — but accessing the funds requires a redraw request, which some lenders restrict.
Key Differences for Investors
| Feature | Offset Account | Redraw Facility |
|---|---|---|
| Interest reduction | Yes (daily) | Yes (daily) |
| Access to funds | Immediate (transaction account) | Restricted (lender approval) |
| Tax deductibility | Loan balance unchanged — full deductibility maintained | Redrawing can contaminate deductibility |
| Best for | Investment properties | Owner-occupied properties |
Why Offset Accounts Win for Investment Properties
The critical difference is tax deductibility. When you redraw funds from an investment loan and use them for personal purposes, the ATO may deem that portion of the loan non-deductible. This is called loan contamination — and it is a costly mistake.
With an offset account, your loan balance never changes. The full loan remains 100% investment-purpose, so the full interest expense stays tax deductible. Your offset funds sit separately and can be used for anything without affecting the loan’s deductibility.
When a Redraw Facility Makes Sense
For owner-occupied homes where tax deductibility is not a concern, a redraw facility is a perfectly valid way to reduce interest while retaining access to extra repayments. Many owner-occupiers prefer the discipline of a redraw — it feels less accessible than a transaction account, which can curb impulse spending.
GeeVee Recommendation
For investment properties, use an offset account — always. For your own home, either works, but offset gives you more flexibility. If you hold both an investment and an owner-occupied loan, keep your cash in the offset against the owner-occupied loan (to reduce non-deductible interest) and make minimum payments on the investment loan (to maximise deductible interest).
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