As the Australian housing market continues to evolve, property investors are increasingly exploring strategic financial tools to optimise their investment returns and manage loan repayments. Two common features attached to home and investment loans in Australia—offset accounts and redraw facilities—offer different advantages. Understanding how they work, particularly in the context of investment loans, can help investors make more informed financial decisions.
Overview of the Australian Housing Market
In recent years, the Australian property market has seen a mix of volatility and growth. While the COVID-19 pandemic caused a temporary slump, subsequent years witnessed a sharp rebound in housing prices, fuelled by low interest rates, supply shortages, and strong demand. As of 2025, interest rates have stabilised but remain elevated compared to historical lows, influencing borrowing behaviour and prompting investors to consider how to structure their loans more efficiently.
Against this backdrop, understanding loan features like offset accounts and redraw facilities becomes especially relevant for investors looking to maximise tax efficiency and flexibility.
What Is an Offset Account?
An offset account is a transaction account linked to your mortgage. The balance in this account is offset daily against your loan balance, reducing the amount of interest charged on your loan.
How It Works:
- Suppose you have a $500,000 investment loan and $50,000 in an offset account.
- Interest is calculated on $450,000 instead of the full loan amount.
- You can still access the $50,000 at any time, like a regular transaction account.
Pros:
- Reduces interest payable, potentially saving thousands over the life of the loan.
- Offers liquidity: funds remain fully accessible.
- No need to formally apply for a withdrawal.
Cons:
- Offset accounts may come with higher fees or interest rates.
- Not all lenders offer 100% offset for investment loans.
What Is a Redraw Facility?
A redraw facility allows you to access any extra repayments you’ve made on your mortgage over and above the minimum required.
How It Works:
- Say your minimum repayment is $2,000/month, but you’ve been paying $3,000.
- The extra $1,000 per month accumulates as available redraw.
- You can access those extra funds later, often via online banking.
Pros:
- Helps reduce loan interest by lowering the principal.
- Can be a form of forced savings with access when needed.
- Usually available on variable rate loans.
Cons:
- Redraws may be subject to conditions or delays.
- Some lenders impose minimum redraw amounts or fees.
- Not as liquid or flexible as an offset account.
Investment Loans: Tax Considerations
For investment properties, tax implications play a critical role when choosing between an offset account and a redraw facility.
Offset Account:
- Using an offset account is generally tax-effective for investment loans.
- Since the funds haven’t been used to pay down the loan, they don’t affect the tax deductibility of the interest.
- This is crucial because investors often claim interest on investment loans as a deduction against rental income.
Redraw Facility:
- Using redraw to access extra repayments may affect the purpose of the loan.
- If the redrawn funds are used for personal expenses (e.g., holidays, buying a car), the interest on that portion may no longer be deductible.
- This can complicate tax reporting and reduce the effectiveness of your investment loan.
ATO Guidance: The Australian Taxation Office has clear guidelines stating that deductibility of interest depends on how the funds are used, not the source of the loan. Therefore, mixing personal and investment redraws can lead to complex tax consequences.
Which One Is Better for Property Investors?
| Feature | Offset Account | Redraw Facility |
| Liquidity | High | Moderate |
| Interest Savings | Yes | Yes |
| Tax Simplicity | Higher | Potentially complex |
| Accessibility | Immediate | May have restrictions |
| Fees | May be higher | Usually lower |
In general, offset accounts are more favourable for investment loans due to their tax clarity and flexibility, despite potentially higher associated costs. Redraw facilities, while still useful, require careful management to avoid unintentionally compromising tax deductibility.
Final Thoughts
As the Australian property market adjusts to ongoing economic shifts, smart use of financial tools can give investors a meaningful edge. Both offset accounts and redraw facilities serve to reduce interest and increase flexibility—but for investment properties, the tax implications of how you use these features can significantly affect your financial outcomes.
Before making any decisions, consult with a mortgage broker, accountant, or financial advisor who understands both lending structures and tax law. Structuring your loan correctly from the beginning can save you considerable stress and money in the long term.
References
- Australian Taxation Office (ATO): www.ato.gov.au
- Reserve Bank of Australia (RBA): www.rba.gov.au
- CoreLogic Property Market Reports
- Australian Securities and Investments Commission (ASIC) Moneysmart: www.moneysmart.gov.au
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The material on this page and on this website has been prepared for general information purposes only and not as specific advice to any particular person. Any advice contained on this page and on this website is General Advice and does not take into account any person’s particular investment objectives, financial situation and particular needs.
Before making an investment decision based on this advice you should consider, with or without the assistance of a securities adviser, whether it is appropriate to your particular investment needs, objectives and financial circumstances. In addition, the examples provided on this page and on this website are for illustrative purposes only.
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