An ordinary home loan consists of one loan account which, over time, has a balance that decreases as you make repayments and increases as the bank charges interest.

If you’ve made extra repayments the bank usually allows you to redraw these back.

If you later decide to rent out your home, discover an offset for investment loans may be more beneficial to you than redrawing.

Don’t put your money in your loan account

Well, if the mortgage is just an ordinary home loan, you could be really disadvantaged from a tax perspective. The tax deductible interest you could claim would be limited to the interest on the loan balance at that time.

By way of example, imagine that you had been diligently paying off your original $500,000 home loan for years and it now had a balance of $100,000.

One day you decide to buy an apartment to live in, redrawing $200,000 for the deposit and renting out your old place. Your new loan would be $300,000 but the deductible investment loan interest in this case would be limited to the interest on the previous $100,000 loan balance.

This isn’t the best tax result.

How can an offset account help?

An investment loan with an offset account is a better solution. This type of loan consists of one loan account and one linked offset account. The loan account works like the loan above but the offset account is special. It’s like an extra bank account linked to the loan where you can park the excess repayments you make.

The account earns no interest, but instead the bank will take the balance into account when calculating your loan interest. If you have a $500,000 loan and $200,000 in the offset account, the bank will calculate interest only on $300,000.

Turning your home into an investment property

While you’re living in the home there is no real difference between the ordinary loan and the loan with an offset. But if you decide to move out of your home and rent it out there’s a huge difference for tax.

Imagine again that you had been paying off your $500,000 loan for years, but this time all extra repayments were put to the offset account. So the loan is now $300,000 with an offset account balance of $200,000 which means that the net debt is $100,000.

You redraw $200,000 for your new place and rent out your old place. Your loan would now stay at $300,000 and the deductible loan interest will be based on the net debt in your loan account of $300,000.

This is a much better tax result. It takes into account the possibility of future changes in your life and still gives you a good tax outcome.

Please call us on 1300 889 743 or enquire online if you’d like further information.

Speak to an accountant

This information is general and has been provided by Lucentor Pty Ltd who are accountants that specialise in tax for property investors.

We recommend that investors obtain financial advice specific to their situation before making any financial investment or decision regarding their finances.

  • Williams

    I have 2 loan splits for my existing mortgage. So, can I have separate offset accounts for each loan splits?

  • Hi Williams,

    Depending on the lender and the loan product you have at the moment, you can have multiple offset account with no fee or some lender might charge you an extra fee for additional account.

  • JK S

    I want to refinance my existing investment loan that I got around two years ago and get an offset account feature with my new loan. Can you guys help with that?

  • Hi JK S, yes, we can help with that. Please complete our online assessment form and one of our investment loan and refinance specialist mortgage brokers will contact you to discuss your situation and find the right lender for you.

  • Phil Gale

    Can I get an investment offset loan account if I borrow to do an extension on my home, intending to rent out a portion of the upstairs extension while continuing to live in the downstairs section?

  • Hi Phil,

    For the purposes of getting a home loan you can choose to get an investment loan or a home loan. As the residence is primarily your home this is fine. Home loans have lower rates than investment loans so I’d recommend that you choose that option.

    From a tax point of view you’d need to talk to an accountant to see if it is tax deductible or not. My understanding is that any interest on money used to renovate part of your home so it can be let out would be tax deductible but I could be wrong.

    Choosing a home loan or investment loan has no effect on your tax deductible status. That’s something totally separate to the bank.

  • Black

    Anyone have any ideas on how to properly take care of a tenant making late payments and will likely soon start missing them altogether?

  • Hi Black,
    We have a page on how you can deal with a tenant that has gone or is going into arrears so please check it out for info that you may find quite helpful:

  • Robinson

    Is there any 100% offset account feature on fixed rate loans?

  • Hey Robinson,

    The vast majority of lenders don’t allow 100% offset accounts for fixed rate home loans. However, we have a select few lenders that can consider this type of loan. You can find out more about 100% offset fixed rate loans on our flexible fixed rate page:

  • Andrew Toal

    Hi… If i have money in my home offset account. can i use this or part of this to buy an investment property and claim the interest i will be charged against my home i live in as the money is no longer in my offset?

  • Hi Andrew,
    You’d need to put the funds into your home loan account and then draw them out again for this to work. The ATO views each redraw as a new loan and looks at the purpose of those funds.
    Disclaimer: I’m not an accountant, please speak to one to confirm this is correct.

  • Andrew Toal

    wonder if you can do it without putting off home loan… as long as you can prove where its from

  • Hi Andrew
    I dont think you can. Please refer to an accountant maybe they have the answer for this one.

  • Andrew Toal


  • erin

    I’m an owner occupier of my place and rent out the spare room and bathroom to a friend- provided that I declare the rent as income, am I able to claim that part of the rent for tax purposes? ie interest

  • Hi Erin,
    My understanding is that you can deduct part of the property expenses based on the % of the floor space that has been rented out. I’d recommend that you talk to an accountant or tax agent about this as it’s not my area of expertise.
    The good news is that you can still qualify for home loan rates rather than expensive investment property rates

  • Sanchez

    I have an existing mortgage with ANZ, and I have recently got an offer from them to open an offset account. So, I wanted to know whether having an offset account is beneficial for me or not?

  • Hi Sanchez,
    The offset account earns no interest, instead the bank will take the balance into account when calculating your loan interest. So, if you have a $400,000 loan and $100,000 in the offset account, the bank will calculate interest only on $300,000. It helps you to save the interest on your loan repayments. Most of the lenders have redraw facility in this type of account, which enables you to extract the funds in offset account as per your need.

  • Rob Tropf

    For tax purpose does it matter if you have your extra repayments in your home loan and later transfer funds from your loan to offset account to be used purely as loan repayments?

  • Hi Rob,
    Each redraw is treated as a separate loan from the view of the ATO. So it’s best to just keep the funds in offset so you avoid complications. The purpose of each redraw will determine if it is tax deductible or not. You’d need to discuss the specifics with your accountant.

  • Rob Tropf

    Thanks for the response . So it might be better to do one lump sum redraw into the offset than lots. For last three months have Bern doing small redraw to cover loan repayments.

  • Hi Rob
    Using equity to make payments isnt a good long term strategy. I hope you have a plan in place such as earning a higher income or selling a property.

  • Rob Tropf

    Aussie living overseas..planned only for 3 months and now 4 years have gone by and our great effort in paying of our home loan is coming back to bite with tax on rent.
    Big decisions ahead with new CGT rules for foreign residents …feel like we are being kicked out of home. Now researching – Sell or keep as investment!
    Nothing like being shoved into cold water to learn about investing.
    Have looked through all your info on investing overseas…know where to come if need be.

    Your site has been very useful thank you.

  • No worries thanks for the feedback.
    Yeah occasionally our government likes to take a cheap shot at people living overseas. Foreign investors and Australians overseas get tarred with the same brush and so Australian expats often suffer as a result. Hope you can figure out a good solution.

  • Eleri

    Quick question,
    If you move out of an owner-occupied apartment and it becomes an investment property, does the interest rate on the loan have to change?

  • HI Eleri,
    Yes, it will definitely change because the purpose of the property/loan has changed.