When it comes to managing your home loan, two terms you’ll hear a lot are “offset account” and “redraw account.” They might sound similar, but they work quite differently – and understanding the distinction can have real implications for your finances.
What’s the Difference?
An offset account is a separate transaction account that sits alongside your home loan. The balance in this account offsets the amount you owe, which means you only pay interest on the difference. So if you have a $500,000 home loan and $50,000 sitting in your offset account, you’re only charged interest on $450,000. If you’re looking at loans with this feature, we can help you find 100% offset home loans that maximise this benefit.
A redraw account, on the other hand, sits inside your home loan itself. It holds any extra repayments you’ve made above your minimum required amount, and you can access those funds if you need them down the track.
One important thing to remember: your offset account, your home loan, and your redraw facility all need to be with the same bank. They work together as part of one lending package. For a deeper dive into which option might suit you better, have a read of our guide on offset vs redraw accounts – it covers the pros and cons of each in more detail.
Why This Matters for Tax
Here’s something that catches people out: if you don’t have an offset account, there could be tax complications – particularly if you’re planning to use your home equity for investment purposes down the track. The structure of your loan matters, and getting it right from the start can save you headaches later.
This is especially relevant if you’re thinking about using your home equity to upgrade or renovate. How your loan is set up can affect what’s tax-deductible and what isn’t, so it pays to understand these details before making any moves.
Not Sure What’s Right for You?
If you’re unsure about how your loan is currently structured, or whether you’d benefit from an offset account, come chat with us. We can also look at whether refinancing your mortgage to a loan with better features might be worthwhile for your situation.
Every borrower’s circumstances are different, and we’re here to help you find the setup that works best for you.
Key Takeaways
- An offset account is a separate account that reduces the interest charged on your home loan
- A redraw account sits inside your home loan and holds any extra repayments you’ve made
- Both accounts must be with the same bank as your home loan
- Not having an offset account can create tax complications, especially if you plan to invest later
- The right loan structure depends on your individual goals – get advice before making changes
