Redraw vs offset

The interest question has no answer, because there is no difference

Both products work the same way: the money reduces the balance the lender charges interest on. $50,000 sitting against a 6% loan avoids $3,000 a year in either. The calculator above prints the figure twice for that reason — not as padding, but because seeing the same number in both rows is the fastest way to stop asking the wrong question.

Whose money is it?

This is the difference that matters even before tax. An offset balance is your savings, held in an account in your name and linked to the loan. Redraw is not money you hold; it is a credit sitting on the loan, and getting it back means the lender advancing it to you again.

Most of the time that distinction is academic. It stops being academic when a lender changes the terms — redraw limits and availability have been reduced at short notice before, usually when lenders are managing risk, which tends to be exactly when a borrower wants the money. An offset balance is not subject to that.

The trap that costs real money

On an investment loan, interest is deductible because the borrowed money was used to produce income. Deductibility follows that use. When you redraw, you are borrowing again — so if the redrawn money goes on a car, a holiday or a deposit for your own home, the interest on that slice is no longer deductible. It does not reset, and it does not come back.

Money in an offset account never left your hands, so spending it has no effect on the loan at all. The balance stays where it was, and every dollar of interest on it stays deductible.

The worst version is the one people walk into by accident: paying down the loan on a home you live in through redraw, then moving out and renting it. Pulling that money back to buy the next home is private borrowing, and the interest on it is not deductible even though the loan is now against a rental. Had the same money sat in an offset, the rental loan would still be at its full deductible balance. If there is any chance a home becomes an investment later, that possibility alone is worth the offset.

When redraw is the sensible choice

Offsets are usually attached to a package with an annual fee, and on a small balance that fee can exceed the benefit. If the loan is on your own home, the balance you would hold is modest, and you have no plan to rent the place out, redraw with no fee is often the better deal. The offset account calculator shows what a given balance actually saves, which is the number to weigh the fee against.