Redraw vs offset

They save the same interest. Exactly the same — and this calculator returns one figure for both to prove it. The decision turns on what happens when you take the money back out, which on an investment loan is a tax question with a price tag.

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: the extra repayment has already paid the loan down, and getting it back means the lender advancing it to you again — which the ATO treats as a new borrowing.

Most of the time that distinction is academic. It stops being academic when you need the money: in the ATO’s own description of these loans, a redraw can need the lender’s consent and be subject to conditions on how much and how often. What your lender’s contract allows is the thing to check before you count on it.

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. Nothing resets it. From then on the loan is mixed-purpose, and each repayment is shared between the private slice and the deductible one in proportion — so the cost fades only as fast as the whole loan is paid down.

Money in an offset account never left your hands — it is a deposit, not a borrowing — so on our reading of the ruling, 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.

From 2027, the price can be smaller

With the investment box ticked, the tax cost above values the lost deduction at your marginal rate, which is what it costs while a rental loss reduces your other income. That changes for one group of owners. From the 2027–28 income year, a loss on an established home you last bought after 7.30 pm on 12 May 2026 (by contract date) no longer comes off your salary. It is quarantined — set first against other residential rental income, then against any gain on residential property that year, with the rest carried forward. If your property is in that group and running at a loss, a lost interest deduction mostly shrinks a carried-forward loss rather than costing tax that year, so that figure overstates it. For grandfathered properties, new builds and rentals that make a profit, the figure stands. The 2027 negative gearing changes set out the rule.

When redraw is the sensible choice

If an offset comes with a package fee or a higher rate, on a small balance that cost 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, a redraw that costs nothing extra can be the better deal. The offset account calculator shows what a given balance actually saves, which is the number to weigh the fee against.