Equity, Offsets and Redraws: Understanding Your Mortgage.

Equity, Offsets and Redraws: Understanding Your Mortgage

Quick Look

Focus: How to use your home loan smarter with offsets, redraws and equity

Key Takeaways :

Offset accounts can reduce interest and help pay off your loan faster
Redraw facilities let you access extra repayments—but aren’t the same as savings
Home equity can be a powerful tool for future investments or renovations
Reading Time: ≈ 6minutes

Introduction

Your mortgage is likely your biggest financial commitment—but it can also be one of your most powerful tools for building wealth.

Understanding how to make the most of offset accounts, redraw facilities, and equity can save you thousands in interest and give you greater control over your finances. The trick is knowing how they work, when to use them, and what traps to avoid.

Context & Problem

Most Australians just “set and forget” their home loan. But as interest rates rise and cost-of-living pressure builds, managing your mortgage well can make a huge difference.

Offset accounts and redraw facilities are two of the most underused features—and many borrowers don’t realise how much they could save or unlock by using them strategically.

Likewise, equity in your home isn’t just theoretical value—it can be a gateway to renovating, investing, or consolidating other debts. But using it comes with responsibility.

Strategy & How To

1. Offset Accounts: How They Work

An offset account is a transaction account linked to your home loan. Every dollar in the offset reduces the interest charged on your loan on a one-for-one basis.

Example:

Loan balance: $500,000
Offset account: $50,000
Interest charged on: $450,000

Benefits:

Can cut years off your loan and save thousands in interest
Funds are fully accessible (like a normal bank account)
Great for keeping your savings “working” while remaining flexible

Tip: Use your offset for everyday spending and funnel all income into it. The longer money sits there between pay cheques, the more interest you save.

2. Redraw Facilities: The Flexible Buffer

Redraw lets you access any extra re payments you’ve made on your mortgage—above the minimum required.

Example:

Minimum monthly repayment: $2,000
You pay: $2,500/month for a year→ $500x 12→ $6,000in redraw available

Pros:

Helps you stay ahead on your loan
Can act as a backup emergency fund
Often available via app or internet banking

Cons:

Access may be restricted by the lender (limits, notice periods, or freezes)
Less flexible than an offset—especially on fixed-rate loans
Often available via app or internet banking

Watch out: Some lenders quietly remove redraw access if your loan is paid far in advance—check the fine print.

3. Using Equity: Unlocking Your Home’s Value

Equity is the difference between your home’s value and what you still owe.

Example:

Home value: $800,000
Loan balance: $500,000
Equity: $300,000
Usable equity (typically 80% of home value less loan):$800,000 x 80%→ $640,000-$500,000 → $140,000You can access this equity through a loan top-up, line of credit, or refinance, often for:
Renovations
Buying another property
Debt consolidation

Important:

You’re borrowing more—repayments and risks increase
Lenders may reassess your income, credit score, and property value
Don’t use equity for lifestyle spending or risky investments

Tip: Build equity faster by making extra repayments, increasing your property’s value, or refinancing to a shorter loan term.

Case Study

Sara’s Smart Offset Strategy Sara has a $600,000 loan and a $40,000 savings buffer. Instead of keeping her savings in a separate high-interest account, she places them in her offset account. Assuming a 6% interest rate, she saves $2,400 per year in interest—tax-free. Over 10 years, that’s nearly $24,000 saved, plus her loan is paid off sooner. She also makes an extra $300/month in repayments and keeps the option to redraw it if needed. Her mortgage is working smarter—not harder. However, she would have retained greater flexibility with the same savings by putting the $300 into the offset account as well.

Common Questions & Misconceptions

Is an offset better than a savings account?

Usually, yes—especially with rising mortgage rates. Interest saved is effectively tax-free, unlike interest earned in a savings account, which is taxable.

Is redraw the same as offset?

No. Redraw gives access to extra repayments you’ve made. Offset directly reduces interest on your loan using your bank balance. Offsets are usually more flexible.

Can I use equity for a deposit on an investment property?

Yes—many investors do. But remember: you’re increasing your debt. Make sure your cash flow and buffers can handle it.

Does having a redraw reduce my loan faster?

Only if you’re making extra repayments. Redraw is just a way to access those repayments later.

Can my lender take away my offset or redraw?

Offset accounts are separate bank accounts—you control them. Redraw access can sometimes be restricted or paused by lenders, especially during hardship or fixed loan periods.

Conclusion

Your mortgage isn’t just a debt—it’s a tool. By using features like offsets, redraws and equity wisely, you can save interest, reduce risk, and build long-term wealth more effectively.

Small tweaks in how you manage your home loan can lead to big results over time—without major lifestyle changes.

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Your risk profile and property preferences
Your usable equity and borrowing capacity
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Book a discovery call with Planning IQ todayand take the first confident step towards comprehensive wealth management.

Disclosure: General information only. Consider your objectives, financial situation and needs, and seek professional advice before acting.

How We Keep It Trustworthy

Every article includes a Review & Fact Check section below—so you know exactly where our facts come from, what’s uncertain, and whether there’s any bias.

Review & Fact Check

Bias Assessment

This article is neutral, educational, and aligned with government sources. It avoids specific product recommendations and promotes informed decision-making.

Fact References

Mortgage features–ASIC’s Money Smart guides on offsets, redraws, and equity (moneysmart.gov.au)Offset vs savings comparison–General financial modelling from bank and broker calculators Equity borrowing rules–Standard lender loan-to-value ratio (LVR) practices and lender policies Total super balance thresholds–Australian Taxation Office (ato.gov.au)

Unverified or Inconclusive Items

Case study of “Sara” is illustrative; savings may vary by rate and us age Tax-free interest savings assumes individual’s tax rate and loan structure

Time Sensitivity

Interest rates, lending policies, and redraw rules can vary or change frequently Figures based on 2025 mortgage market averages and subject to updates