Refinancing your home loan can unlock a lower interest rate, smaller repayments or more flexible loan features. But there is one detail homeowners often overlook: what happens to the money sitting in a redraw facility or offset account when the old mortgage is closed?
The short answer is that your offset money remains your money, but you may need to transfer it before settlement. Your redraw balance is different. It represents extra repayments already made against your house loan and does not automatically reappear as redraw with your new lender.
Get this wrong and you could temporarily lose access to your savings, miss direct debits or refinance for less than you intended. Get it right and the move can feel surprisingly smooth.
Here is what you need to know before changing home loan lenders.
What Happens to My Redraw or Offset Account When I Restructure my house loan?
When you refinance, your new lender pays out your existing mortgage. The old home loan is then discharged and closed.
Any offset account linked to the old loan will stop providing an offset benefit. Depending on the lender and account structure, the account may be closed, restricted or converted into a standard transaction account.
Your redraw facility ends when the old home loan is paid out. Extra repayments in redraw have already reduced the loan balance, so the redraw amount is not a separate pile of cash that simply moves across to the new mortgage.
If you want to keep access to an equivalent amount, you must plan for it when applying for the new loan.
Quick Answer: What Happens to My Redraw or Offset Account When I Refinance?
Your offset balance usually needs to be transferred to your new offset account or another bank account. Do this before your existing lender restricts or closes the account.
Your redraw balance is absorbed into the payout of your old home loan because those funds are extra repayments, not money held in a separate savings account. To retain access to that amount, you may need to apply for a larger new loan or withdraw the redraw before settlement, subject to lender approval, borrowing capacity and possible tax consequences.
What Happens to My Offset Account When I Refinance?
An offset account is a transaction or savings account linked to an eligible home loan. Its balance reduces the portion of your mortgage on which interest is calculated.
For example, if your home loan balance is $600,000 and your offset contains $50,000, interest may be calculated on $550,000.
According to the Australian Government’s Moneysmart guidance on mortgage offset accounts, an offset account is separate from the mortgage, even though the two accounts work together to reduce interest.
When you refinance, the loan connected to the offset is closed. This means the account can no longer offset that mortgage.
What happens next depends on your lender. The old account may close, remain open as an everyday account or become restricted shortly before settlement. Some lenders may also use offset funds to reduce the final payout unless you move the money first.
The safest approach is to ask your existing lender exactly what will happen and transfer the money before any settlement restrictions begin.
Does My Offset Account Automatically Transfer to the New Lender?
No. Your old offset account will not automatically become an offset account with your new bank.
If your new home loan includes an offset feature, the lender will usually create or nominate a new eligible transaction account. You will then need to transfer your savings into that account.
This can feel like changing phones and discovering none of your apps remembered their passwords. It is manageable, but it is much easier when you prepare before settlement day.
Will My Bank Close My Offset Account When I Refinance?
It depends on the lender and the type of account.
Some lenders close the offset account when the mortgage is discharged. Others convert it into a standard transaction account. In some cases, access may be restricted several business days before settlement.
For example, Macquarie explains that the treatment of its offset accounts during discharge can vary by account type. An account may be converted to a transaction account, while another may be restricted and closed after available funds are applied to the payout. You can read Macquarie’s current explanation in its home loan discharge guide.
Do not assume your account will remain open simply because your debit card still works today. Confirm the timing directly with your lender.
Should I Empty My Offset Account Before Refinancing?
In many cases, yes. Moving the money before settlement gives you more control over where it goes and helps prevent a temporary loss of access.
Transfer the balance to your new offset account or another account in your name. Allow enough time for transfer limits, processing delays and security checks.
Do not wait until the night before settlement if you have a large balance. Your daily transfer limit may turn a simple job into an irritating phone call with the bank.
Keep enough money available to cover upcoming mortgage repayments and household expenses. Your broker, conveyancer or lender can confirm whether another repayment is due before settlement.
What Happens to Direct Debits and Salary Payments in My Offset Account?
They do not move automatically.
If your salary, rental income, insurance, utilities, subscriptions or credit card payments use the old offset account, update those banking details before the account is closed.
Start with essential payments such as electricity, council rates, insurance and loan repayments. Then update less urgent services.
It may help to keep the old account open briefly if the lender allows it. However, once it stops being linked to the mortgage, it will no longer reduce home loan interest.
What Happens to My Redraw Facility When I Refinance?
A redraw facility allows you to access eligible extra repayments made above the required minimum on your home loan.
Unlike offset money, redraw is not held in a separate transaction account. The extra repayment has already reduced the principal owing on your mortgage. Your lender may allow you to borrow some of that money again under its redraw rules.
When the old loan is refinanced, the new lender pays the amount required to clear it. The old mortgage balance reaches zero, and its redraw facility disappears with the closed loan.
This is why saying that redraw “transfers automatically” can be misleading. You may be able to preserve access to a similar amount, but it must usually be included in the refinance structure.
Does My Redraw Balance Transfer to My New Home Loan?
Not automatically.
Imagine your original mortgage was $500,000. After making extra repayments, you now owe $450,000 and have $50,000 shown as available redraw.
If you refinance only the $450,000 payout balance, your new mortgage may begin at about $450,000, plus or minus approved costs and adjustments. The $50,000 will not automatically appear as available redraw.
If you want continued access to that $50,000, you may need to apply for a new loan of approximately $500,000. The additional amount would need to be approved and accounted for at settlement.
ANZ Plus provides a similar example in its explanation of what happens to redraw when refinancing. However, the exact process differs between lenders.
Can I Withdraw My Redraw Before Refinancing?
You may be able to withdraw available redraw before settlement, but check the consequences first.
Your lender may restrict redraw once it receives a mortgage discharge request. There may also be transaction limits, minimum redraw amounts or approval requirements.
Withdrawing redraw increases your outstanding home loan balance. It may also increase the amount your new lender must advance at settlement.
Most importantly, the way you use the withdrawn money can affect future tax deductions if the property is, or later becomes, an investment. Speak with a registered tax adviser before moving redraw funds where investment use is involved.
How Do I Keep My Redraw Money When I Refinance?
Tell your mortgage broker or new lender about the redraw balance at the beginning of the refinance application.
Ask for the proposed new loan amount to be explained in writing. Check whether it includes only the current payout balance or also includes the amount you want to remain accessible.
Any additional borrowing will be subject to the new lender’s credit assessment. Your income, expenses, property value, loan-to-value ratio and borrowing capacity will all matter.
If approved, the additional funds might be paid to a nominated account at settlement. You may then be able to place them into the new loan and access them through its redraw facility. The process depends on the lender’s settlement procedure and redraw rules.
Offset Versus Redraw When Refinancing a Home Loan
Offset and redraw can both reduce mortgage interest, but they are not the same.
Money in an offset account remains in a separate account in your name. It reduces the loan balance used to calculate interest without directly paying down the principal.
Money available through redraw comes from extra repayments already made into the house loan. Access is subject to the lender’s rules and may change over the loan term.
I generally find offset accounts easier for people who regularly move money, receive their salary into the account or want clear access to emergency savings. Redraw may suit borrowers who prefer to put spare cash directly against the mortgage and only access it occasionally.
The right choice depends on the interest rate, fees, account features and how you manage money. A low-rate basic home loan with redraw could cost less than a package loan with an offset account. On the other hand, a useful offset balance may produce savings that outweigh the package fee.
The smartest comparison looks beyond the headline mortgage rate.
Is an Offset Account Better Than Redraw When Refinancing?
An offset account may provide more flexible access to your money. It can also make record-keeping simpler if your home may become an investment property.
Redraw may be useful when the loan has no offset feature or when the borrower wants extra repayments to sit directly against the home loan.
Neither option is automatically better. Compare the interest rate, comparison rate, annual fee, redraw restrictions and whether the offset is 100 per cent or partial.
Can Refinancing Redraw Affect Tax Deductions?
Yes, particularly if the property is rented now or may become an investment property later.
The tax treatment of loan interest generally depends on how borrowed money is used, not simply which property secures the mortgage.
If you redraw money and use it for a private expense, such as a holiday or personal car, the interest related to that portion may not become deductible merely because the loan is secured against an investment property.
The Australian Taxation Office’s ruling on redraw facilities and interest deductibility explains how the use of redrawn funds can affect the tax treatment of interest.
Refinancing does not necessarily erase the history or purpose of a loan. Mixing private and investment borrowing can create a loan that must be apportioned over time.
This can become painfully complicated. A five-minute conversation with a qualified tax adviser before refinancing may prevent years of record-keeping frustration.
Does Taking Money From an Offset Account Affect Tax Deductions?
Withdrawing your own savings from an offset account is generally different from borrowing money through redraw.
The offset withdrawal does not usually change the principal loan balance. It simply means less money is offsetting the loan, so more interest may be charged.
However, tax outcomes depend on your circumstances and the structure of your accounts. Seek professional tax advice before refinancing an investment loan or a home that may later become a rental property.
Which Lenders Offer Offset Accounts or Redraw After Refinancing?
Many Australian lenders offer offset accounts, redraw facilities or both on eligible home loans. These may include CommBank, Westpac, NAB, ANZ, Macquarie Bank, ING, Bankwest, Suncorp Bank and various non-bank lenders.
The feature can depend on the product rather than the lender alone. For example, a lender may provide offset and redraw on selected variable-rate loans but restrict them on basic, fixed-rate, construction or SMSF home loans.
Some lenders allow multiple offset accounts. Others provide only one. A home loan may advertise redraw but still apply access limits or scheduled adjustments.
Products, fees and eligibility rules change. Always compare the current loan terms instead of choosing a mortgage based only on a familiar bank name.
How to Protect Your Offset and Redraw Before Refinancing
Begin by downloading recent statements for your mortgage, redraw facility and offset account. These records may be useful later, especially if the property has an investment purpose.
Confirm the available redraw amount and the actual home loan payout figure. They are not the same number.
Ask your current lender whether the offset account will close, convert or become restricted. Find out the exact date on which you may lose access.
Move your offset money early enough to avoid transfer limits. Update your salary, direct debits and recurring payments.
Tell your new lender how much redraw access you want to preserve. Check that the approved loan amount and settlement instructions reflect this.
Finally, confirm that your new home loan includes the offset or redraw features you expect. The relief of securing a lower rate can fade quickly if the loan is missing the feature you use every day.
Frequently Asked Questions About Redraw, Offset Accounts and Refinancing
What happens to my redraw facility when I refinance?
Your old redraw facility closes with the existing home loan. Extra repayments have already reduced the amount you owe, so the redraw balance does not automatically transfer. You may need to request a higher new loan amount if you want continued access to equivalent funds.
What happens to the money in my offset account when I refinance?
The money remains yours, but the account will stop offsetting the old mortgage. Depending on the lender, the account may close, convert to a transaction account or become restricted. Transfer the balance before settlement unless your lender gives you different instructions.
Can I transfer my offset balance to my new lender?
Yes. You can normally transfer the funds to your new offset account once it has been opened. The transfer is not automatic, so check daily payment limits and processing times.
Should I withdraw redraw before refinancing?
Only after checking the financial and tax consequences. Withdrawing redraw increases the amount owing and may affect interest deductibility if the funds are used privately. It can also change the amount required at settlement.
Can I refinance and keep the same redraw amount?
Potentially, but your new lender must approve the required loan amount. Your borrowing capacity, property value and loan-to-value ratio will affect the decision.
Will refinancing affect my direct debits?
Yes, if direct debits are connected to an offset account that closes or changes. Update regular payments, salary deposits and scheduled transfers before settlement.
Can I get an offset account with my new home loan?
Possibly. Offset accounts are available on many eligible variable-rate mortgages, but not every loan includes one. Compare the interest rate, fees and offset rules before applying.
Is redraw money considered savings?
Not in the same way as money in a bank account. Available redraw represents eligible extra repayments already made against your home loan. Access remains subject to the lender’s terms and conditions.
Before You Refinance, Make Every Dollar Count
Refinancing should leave you feeling lighter, not wondering where your offset savings or redraw balance went. Before signing a new loan contract, compare more than the advertised home loan rate. Look at the comparison rate, fees, loan term, offset options, redraw conditions and total interest cost.
Visit RateBuster to compare house loan rates from a range of lenders and find a mortgage that matches the way you manage your money. You can also explore our mortgage calculators to estimate your repayments, refinancing costs and potential interest savings before making the switch.
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