Offset or Revolving Credit? The One Choice That Could Save (or Waste) You Thousands

Shane Passfield-Bagley
Dec 11, 2025
6 min read

Updated: Jan 16

Offset mortgages and revolving credit loans are often discussed as if they are the same. However, they function quite differently. Understanding these differences can significantly affect your cash flow, daily banking, and even your tax situation if you are an investor.

In this article, I will guide you through how each option works and highlight the key differences to consider when making your choice.

Understanding Offset Mortgages and Revolving Credit Loans

Offset Mortgage – Link Your Savings, Reduce the Interest

An offset mortgage connects your home loan to one or more everyday or savings accounts. Here’s how it works:

Your money remains in those accounts as usual.
The bank assesses your loan balance and subtracts the total from your linked accounts.
You only pay interest on the remaining balance.

Example:

Home loan: $500,000
Linked accounts: $40,000
Interest is charged as if the loan is $460,000.

Your repayments are typically structured like a standard loan, where more of each payment goes toward the principal. This means you can pay off your loan faster.

Revolving Credit – A Giant Overdraft Secured by Your Home

A revolving credit functions more like a large overdraft secured against your home. Here’s what to expect:

You receive a transactional banking account with an overdraft limit, for example, $50,000.
Your income or savings are deposited into this account.
Interest is charged based on the daily balance of the account.

There are two common types of revolving credit:

On-call facilities
Typically an "interest-only" loan.
No fixed term or required principal reduction.

Reducing facilities
The limit or a fixed principal amount reduces over time.
It feels more structured but allows for redraws.
Can be interest-only for a limited time, subject to bank assessment.

Many borrowers set these accounts as their main banking account, depositing income and paying bills from it. This can maximize interest savings, but it requires diligent account management.

Cash Flow and Repayment Experiences

Offset: Fixed Repayments, Heavier Cash Flow, Faster Progress

When you have an offset mortgage with principal and interest:

Your repayments are calculated like a standard loan on a floating or variable interest rate.
They typically do not decrease just because you have more money in offset accounts.
More of each repayment goes toward the principal, shortening your loan term and reducing total interest over time.

This can feel heavier on cash flow compared to a flexible revolving credit, as you are committing to consistent principal reduction.

In an interest-only offset, this difference disappears. A fully offset account would have zero repayments, similar to an interest-only or "on-call" revolving credit.

Revolving Credit: Flexible Cash Flow, High Discipline Required

With an on-call revolving credit:

There is usually no set principal repayment required.
You must cover the interest and any fees; the rest is up to you.
In good months, you can significantly reduce the balance.
In tighter months, the balance may increase.

Reducing revolving facilities provide more structure but still allow you to redraw up to the limit. This flexibility is beneficial if managed intentionally. However, it can be risky if treated like free money. I recommend having a solid plan when using these facilities, along with an appropriate limit.

LVR Rules and Size Limits

The bank's rules can significantly influence your options.

High LVR Restrictions
At high LVRs (small deposits), many banks restrict or eliminate the option for revolving credit.
Maximum Facility Limits
Even at comfortable LVRs, banks often cap the size of a revolving credit.
This cap may be a dollar limit or a percentage of your total lending/property value.

Offset structures have their own rules, but revolving credit is typically more tightly controlled due to its flexibility and perceived risk.

In practice, many people end up with:

A core home loan on fixed or floating table rates.
A smaller revolving credit or offset portion on the side.

Fees, Rates, and Cash-Backs

Fees and Pricing

Some revolving credits incur a monthly account fee.
Interest rates on revolving credit and offset facilities are often slightly higher than standard floating/variable rates, but this varies by lender.

When comparing options, consider:

The interest rate.
Any ongoing fees.
The expected balance you will hold in the facility.
How long it will take to save the amount needed to offset the facility.

Cash-Backs on Offset Lending

A crucial point often overlooked:

Some banks do not offer cash-backs on lending set up in an offset structure.
Others may provide a smaller cash-back than on standard or revolving lending.

This can result in:

Hundreds or even thousands of dollars less at settlement if a significant portion of your lending is in offset.

There is a trade-off between:

A one-off lump sum now and
Ongoing interest savings from an offset over time.

It’s essential to weigh both sides of this equation, rather than just chasing the largest cash-back or the most appealing structure on paper.

Tax Treatment for Investment Lending

This information is general. Tax rules can change, and it’s wise to consult a tax adviser for your specific situation.

The key takeaway is that tax rules usually focus on what the money is used for, not just the product it’s in.

Revolving Credit on Investment Property
If you use the same revolving account for rental expenses and personal spending, it becomes a mixed-use facility. This may lead to more complex tax treatment and record-keeping.
Additionally, placing a lump sum of personal savings into an investment revolving credit could "re-purpose" the facility, potentially resulting in the loss of tax deductibility on future interest charges.
Offset on Investment Property
An offset can sometimes simplify keeping the borrowing purpose clear.
Your investment loan can remain in a separate account, while your savings sit in offset accounts alongside it.

The right structure for investors varies case by case and should be designed with both lending and tax advice.

Risk Profile: Especially for On-Call Revolving Credits

On-call revolving credits carry more risk:

No fixed repayment term.
No built-in finish line.
As long as you meet interest payments and stay under the limit, the balance can linger for years.

These facilities should be used with:

A strong, written repayment strategy.
Regular check-ins to ensure the balance is trending down.
A plan for what happens if your income drops or rates rise.

Reducing revolving credits and offsets with table repayments provide more structure, which many find safer.

Advanced Strategies and Flexibility

Revolving Credit Plus Credit Card

Some financially savvy clients:

Run all income and bills through a revolving credit.
Use a credit card with interest-free days for everyday spending.
Pay the card off in full each month from the revolving credit.

When done correctly, this keeps your money in the revolving account longer and utilizes the credit card's interest-free period to lower your average daily balance.

However:

It requires excellent money management.
One missed payment or a growing card balance can quickly negate any benefits.

This strategy is not for beginners.

A Flexible Alternative to Higher Repayments

Both offset and revolving credit can serve as a great alternative to locking in higher repayments:

You maintain minimum repayments at a comfortable level.
You can park surplus cash into the flexible facility to reduce interest.
You keep a cash buffer available for unexpected changes.

The key is to size the limit correctly:

Big enough to be useful.
Not so large that it tempts overspending or allows debt to drift.

I often recommend setting a ~12-month savings goal and reviewing it annually or as needed.

The advantage of this strategy lies in its flexibility. It eliminates the need to commit to higher repayments while ensuring a cash reserve is available for emergencies. I refer to this as a "happy middle ground" between increasing repayments and growing your savings.

So Which One Is Right for You?

Offset might suit you if you:

Prefer using multiple accounts and “buckets” to manage your finances.
Desire clear structure with regular principal reduction.
Are an investor looking to maintain cleaner borrowing purposes for tax reasons.

Revolving credit might suit you if you:

Are confident with budgeting and self-control.
Have variable income and want maximum flexibility.
Prefer a single, straightforward account where every spare dollar automatically reduces interest.
Are ready to commit to a clear repayment plan, especially with on-call facilities.

In many situations, the best outcome comes from a mix: some fixed, some flexible, and a structure that aligns with your lifestyle and spending habits.

If you are weighing your options, it’s beneficial to map out:

Your income and spending habits.
The cash buffer you want.
Your comfort with floating-rate risk and discipline.

Then, collaborate with a mortgage adviser, and a tax adviser if you own or plan to own investment property, to create a structure that aligns both the numbers and your real-world behaviour.