Mortgage Repayment Structures Explained: Offset vs Redraw vs Standard Loan

Most New Zealand borrowers spend more time negotiating their interest rate than choosing their repayment structure — yet the structure you pick can have a bigger long-term impact on your total interest costs, flexibility, and financial control than a few basis points of rate difference.

Offset, redraw and standard P&I loans all work differently, and each suits a different type of borrower. This guide breaks the structures down in plain English, shows how they’re used in real life, and gives you a decision framework to pick the one that actually fits your behaviour — not just your bank’s default option.

If you'd like to put this to the test and understand which structure might be right for you then take our simple and short Finding the Right Loan Structure Quiz.

Disclaimer: This article provides general information only and does not constitute personalised financial or lending advice. Loan features, lender policies, fees and eligibility vary by bank and borrower circumstance.

What Each Structure Means

Standard Home Loan (Principal + Interest)

The simplest structure — repayments include both principal and interest, with no special linked accounts or features. Once paid, your money is locked into the loan unless you request a top-up or refinance. Typical for fixed loans and often carries the lowest interest rate.

Check our piece on Refinancing Strategy: How to Optimise in a Falling-Rate Environment

Redraw Facility

A redraw loan allows you to pay extra onto your mortgage and later withdraw (“redraw”) those extra repayments if needed. Effectively, you reduce interest by lowering your balance during the period your extra money sits in the loan. Some NZ lenders offer basic redraw, but it’s more common on floating or variable-style products.

Offset Account

An offset account links your mortgage to a transaction or savings account. Instead of earning interest on your cash, the money offsets your home loan balance and you’re charged interest only on the net amount. Example: if your mortgage is $600,000 and your offset account has $50,000, you only pay interest on $550,000.

How NZ Lenders Typically Implement These Features

• True offset is mainly offered by BNZ, Kiwibank, ASB (limited structures) and non-bank lenders. Rates may be slightly higher than standard.
• Redraw varies widely — some lenders allow it freely, others charge fees or restrict withdrawals on fixed loans.
• Standard P&I is universal across all banks and is usually the cheapest structure with the least flexibility.
It’s critical to check the specific terms before assuming a structure behaves the same across banks.

Take a look at our Serviceability Calculator to understand how much of a mortgage you can likely qualify for and more importantly afford.

Pros & Cons of Each Structure

Standard Loan

Pros:
• Lowest rates available
• Predictable repayments
• Ideal if you keep minimal cash reserves

Cons:
• Extra repayments are usually locked in unless you refinance
• Less flexible for lump sums or variable incomes

Redraw Facility

Pros:
• Reduces interest by lowering loan balance
• Flexibility to access extra repayments later
• Good for bonus/commission earners
Cons:
• Some lenders charge redraw fees
• If you redraw too often, you lose interest savings
• Temptation risk — easy access can undermine discipline

Offset Account

Pros:
• Huge flexibility — every spare dollar reduces interest
• Ideal for households with income flowing through accounts
• Great for investors parking rental surplus
• Enables interest savings without locking money into the loan

Cons:
• Offset loans may carry higher rates
• Benefit is minimal unless you hold high consistent balances
• Requires good money-management habits

When Each Structure Makes Sense

Standard Loan — best for simplicity and lowest cost

Use this if:
• You prefer predictable payments
• You don’t hold large cash balances
• You’re focused on rate, not flexibility

Redraw Facility — best for borrowers with variable or lump-sum income

Use this if:
• You receive bonuses/commissions
• You want to make extra repayments but keep emergency access
• You’re disciplined enough not to redraw unless necessary

Offset Account — best for high cash-flow households and investors

Use this if:
• You hold regular cash reserves ($10k–$100k+)
• Your salary or rental income cycles through your accounts monthly
• You want maximum day-to-day flexibility while reducing interest
• You prefer liquidity over locking repayments into the loan

Real-World Examples (NZ Context)

Example A — Stable Income + Low Cash Reserves → Standard Loan

A borrower with a $650,000 loan, stable PAYE income, and minimal cash savings benefits most from lowest-rate standard P&I. Their cash balance is too low for offset to matter.

Example B — Variable Income + Bonus Payments → Redraw

A borrower earning commission receives $15,000 twice a year. Paying these into a redraw loan reduces interest during the year, but funds can be redrawn to cover tax or irregular expenses.

Example C — Strong Cash Reserves → Offset

A household keeps $40,000–$80,000 in their accounts at most times. With a $700,000 loan, offsetting even $50k could save ~$3,000 per year in interest (assuming ~6% rate). Offset gives liquidity + interest savings without committing the cash permanently.

Test this yourself and find out which structure could be right for you with our short Finding the Right Loan Structure Quiz.

Things to Watch / Common Pitfalls

• Offset without cash is useless: Paying a higher rate for no offset balance wastes money.
• Redraw temptation: Redrawing too often erodes repayment progress.
• Standard loan missed opportunity: If you consistently hold savings, you’re paying more interest than necessary.
• Tax implications for investors: Redraws or offsets can change interest-deductibility — get advice.
• Fees and conditions: Some lenders charge for redraw or set minimum redraw amounts.
• Refinancing timing: Switching structures mid-fixed-term may trigger break fees.
• Structure mismatch: Your behaviour must match the structure, otherwise benefits evaporate.

How to Choose the Right Structure

1. Assess your cash-flow patterns — steady, lumpy, or surplus-heavy?

2. Map upcoming events — bonuses, renovations, potential sale, maternity leave.

3. Compare the same loan across structures — rate vs flexibility trade-offs.

4. Consider splitting — e.g., 80% standard fixed + 20% floating offset.

5. Review annually — your financial behaviour changes over time.

Check our piece on Refinancing Strategy: How to Optimise in a Falling-Rate Environment

Our final word

Want personalised advice on which structure suits your mortgage? Use our loan structure quiz and other simulation tools, compare your options, and book a free review with our mortgage team. The right structure can save you thousands — but only if it fits the way you actually use your money.

Disclaimer

This article provides general information only and does not constitute personalised financial or lending advice. You should consult a licensed mortgage adviser for your individual situation. Loan features, fees and eligibility vary by lender.