Both an offset account and making extra repayments reduce the interest you pay on your home loan. In most cases, the interest saving is identical — but there's one crucial difference that makes offset accounts better in many situations.
Same
Interest saved (if same amount)
Offset
Wins for flexibility
Redraw
Accessible but with restrictions
Tax
Offset wins for investors
How Each Works
Offset Account
An offset account is a savings or transaction account linked to your home loan. The balance in the offset account is "offset" against your loan balance when calculating daily interest. For example:
- Loan balance: $600,000
- Offset account balance: $50,000
- Interest is calculated on: $600,000 − $50,000 = $550,000
You retain access to the $50,000 in your offset account — it's your money, available any time. The loan balance remains $600,000. Your minimum repayments don't change — but more of each repayment goes toward principal rather than interest, so the loan is paid off faster.
Extra Repayments
Making extra repayments means paying more than your minimum scheduled repayment — either as a lump sum or regular additional amounts. This directly reduces the outstanding loan principal:
- Loan balance before extra repayment: $600,000
- Extra repayment made: $50,000
- Loan balance after: $550,000
- Interest is calculated on: $550,000
The math: interest saving is identical. Whether you have $50,000 in an offset account or have made $50,000 in extra repayments — the daily interest charged is the same. The difference is what happens to the $50,000.
The key difference: access to your money
Offset Account
Money stays yours — withdraw it any time for any reason. No approval needed. Immediate access.
Extra Repayments
Money is in the loan. To access it, you need a redraw facility. Some lenders restrict redraw or charge fees. Approval may be required.
Want to find a loan with a quality offset account at the best rate?
Tell us your loan details and we'll find you the best offset-account loans across 30+ lenders — and confirm whether offset or extra repayments is the right strategy for you.
Or
When Extra Repayments Beat an Offset Account
- Lower interest rate: Some lenders charge a higher rate or monthly fee for loans with offset accounts. If the fee exceeds the benefit, extra repayments into a basic loan may win.
- You don't need flexibility: If you have no foreseeable reason to access the funds, there's no benefit in the accessibility of an offset. Extra repayments on a basic loan at a lower rate may produce better total outcome.
- No access fee on redraw: If your loan has a free redraw facility, extra repayments are nearly as accessible as an offset account — the practical difference shrinks.
The Investor Case for Offset (Tax Reason)
For investment property loans, offset accounts have a significant tax advantage that makes them clearly superior to extra repayments:
If you make extra repayments and later want to access the money (e.g., to buy another property), you redraw from the loan. This redraw is not tax-deductible — the ATO considers the purpose of the funds when determining deductibility, and money redrawn for non-investment purposes (like buying a car or owner-occupied property) loses deductibility on that portion of the loan.
With an offset account, the money never enters the loan — it stays in your separate account. You can use it for any purpose without affecting the tax deductibility of the loan interest. This is a critical distinction for anyone who may eventually want to use their savings for a private purpose while keeping the investment loan fully deductible.
The Numbers: How Much Does $50,000 in Offset Actually Save?
On a $600,000 loan at 6.5% over 25 years:
- $50,000 in offset reduces annual interest by approximately $3,250
- Over the life of the loan, this $50,000 maintained in offset for the full term saves approximately $65,000–$80,000 in interest and reduces the loan term by 2–3 years
The numbers are compelling — and they're the same whether you use offset or extra repayments. The decision between them comes down to flexibility and your investment strategy.
What to Look for in an Offset Loan
- Full offset vs partial offset: Full offset (100% of account balance offsets the loan) is standard and what you want. Partial offset (only a percentage offsets) is rare and less useful.
- No monthly fee: Some lenders charge $10–$20/month for an offset account. Over 25 years, that's $3,000–$6,000. Make sure the offset is fee-free or the saving from the rate benefit outweighs it.
- Multiple offset accounts: Some lenders allow multiple offset accounts linked to the same loan — useful for keeping savings organised (e.g., emergency fund, holiday savings, investment fund).
At Mortgagefy we find the best offset-account loans across 30+ lenders and model the offset vs extra repayments question specifically for your income, balance, and investment plans. The consultation is free. See also: Should You Refinance in 2026? | Comparison Rate Explained | The Loyalty Tax.
Get the Right Loan Structure for Your Goals
Whether offset or extra repayments, we find the loan that maximises your interest saving. Free comparison.
Ready to talk to a broker?
Get a straight answer — no obligation. Mon–Sat 9am–7pm.