Extra repayments vs an offset account

The same dollar, two homes

Moneysmart says offset and redraw "can potentially help you save on interest, but they work in different ways". With an offset, your savings sit in a linked account and reduce the balance interest is charged on. Extra repayments go straight onto the loan, and you may be able to withdraw them through redraw, depending on your loan terms.

Worked figures

All figures are RateSonar's arithmetic with the rate held constant at the middle advertised standard variable rate, 6.74%, as at 2 Nov 2026. They are not what a lender will charge you.

Extra repayments. On a $600,000 loan over 30 years, an extra $500 a month cuts the term by about 8.3 years and saves about $254,774 in interest, compared with paying only the minimum.

Offset. A $50,000 balance held in a 100% offset on the same loan saves about $3,370 a year, roughly $281 a month, while the balance stays there.

The offset saving does not require you to commit the money. The extra repayments saving builds over years because the lower balance compounds. You can get the same effect with an offset if you keep adding to it, so the real difference is behaviour and access, not the interest maths.

What each approach costs

Moneysmart warns that some banks charge for offset features through higher rates, account fees or both. Check the rate with and without the offset, any annual or package fee, and any account fee. Moneysmart suggests an offset may not be worth it if your balance is usually low, for example under $10,000.

Extra repayments often cost nothing on a variable loan, but Moneysmart says fixed loans may limit extra repayments and some have fewer features such as offsets. A redraw facility can carry rules about minimums and fees, so ask.

To see which loans carry these features, look at products on the home loan rate board, and compare lenders in compare rates.

Fixed loans

On a fixed loan, extra repayments may be capped, and an offset may not be available. Moneysmart gives no dollar caps. The cap is in your loan terms or key facts sheet. If you exceed it, a fee may apply, so check before you overpay. A split can put the offset and extra repayments on the variable part. See split home loans and fixed vs variable. Current advertised fixed rates are on fixed home loan rates.

Investment loans and tax (general information only)

The ATO says that if you borrow to buy a rental property and it is rented or genuinely available for rent, interest on that loan may be deductible. It also says a loan used for both rental and private purposes must be apportioned, and that a redraw from a loan is treated as a separate borrowing, with interest depending on what the redrawn money is used for. Paying extra into an investment loan reduces the deductible interest, and drawing it back out for private spending can change the split. The ATO points to Taxation Ruling TR 2000/2 for redraw and line of credit facilities. Many investors ask a tax professional how to structure this. This is not tax advice. For the rate side, see investor home loan rates.

Which works harder? Questions to ask

• Do I need the money back at short notice? An offset keeps it accessible.
• Is the offset's cost (rate or fees) lower than the interest it saves? Do the sum from the earlier section.
• Does my loan allow redraw, and are there limits or fees?
• Will I actually keep the money in the account, or spend it?
• Is the loan fixed, and what are the extra repayment caps?
• Is the loan an investment loan, and have I asked a tax professional how redraw is treated?