Offset and redraw look like the same thing. The day you turn your home into an investment, they stop being the same thing.
Here’s the difference most people never get told.
An offset is a separate everyday account linked to your loan; the balance sitting in it reduces the interest you’re charged.
A redraw is the extra repayments you’ve made inside the loan, that you can pull back out later. On a month-to-month basis they save you the same interest. Identical maths.
The split happens when you take that money back out.
The ATO treats a redraw as a brand-new borrowing… so whether the interest is deductible depends on what you use the redrawn money for. Pulling from an offset isn’t a borrowing at all. It’s just you spending your own savings, and it doesn’t touch the loan behind it.
Sounds technical until you live it. Picture an Inner West couple who’ve parked years of extra repayments into their loan via redraw. Down the track they keep that home as a rental and buy a new place to live in. They pull the redraw out to help fund the new home — and that portion of the interest is no longer deductible, because the ATO sees it as new money borrowed for a private purpose. Same dollars in an offset, and the full loan stays an investment borrowing. Nothing lost.
This is why we talk about structure before rate. Same money, same interest saved… but one path keeps your options open and the other quietly shuts one you can’t reopen later.
If there’s any chance you’ll one day keep your current home and buy another, this is worth getting right at the start, not after. Happy to walk you through how it’d apply to you.
Of course, it’s important to note that we do not provide tax advice, nor does the above consider the circumstances of your individual situation. You should always seek out independent advice from your qualified taxation accountant.
My Mortgage Concierge is licensed under ACL 392736 Sattout Accounting Services Pty Ltd. General information only — seek personal advice before acting.
