Deciding between a redraw facility and offset account on your mortgage? The difference might cost you more than you think.
A client recently learned a tough (and expensive) lesson about the difference between a redraw facility and an offset account for their mortgage.
They had taken out an investment loan and used a redraw facility to park their savings and reduce interest. They’d opted against an offset account to avoid the additional fees, figuring the redraw would do the trick.
For a while, it worked well—until they decided to redraw a lump sum for a personal holiday.
Here’s where things went sideways.
Come tax time, they discovered that the interest on the redrawn amount was no longer tax deductible, because the funds were used for personal purposes—not for the investment. That’s despite the loan itself originally being for an investment property.
💸 The result? Thousands of dollars lost in potential tax deductions.
With hindsight, they realised that an offset account would’ve been a better fit. Why?
✅ An offset account works like a transaction account, with no impact on the tax status of your mortgage interest—even if you use the funds for personal reasons.
❌ A redraw facility is different: once you redraw funds, the purpose of those funds matters for tax deductibility.
👉 Key takeaway: Redraw facilities can be cheaper, but they come with tax implications. Offset accounts offer flexibility and certainty—especially when investment tax deductibility is involved.
If you’re unsure which option is right for you, let’s chat. The right structure could save you thousands.
Please note: While this scenario is informative, always seek personalised advice from a qualified tax professional to understand your tax situation.