February 16, 2026
Offset Mortgages vs Revolving Credit: Which Option Is Right for You?
If you are looking for ways to reduce the interest you pay on your mortgage or pay it off faster, you have probably heard about offset loans and revolving credit facilities. Both are popular tools in New Zealand and, when used correctly, can make a meaningful difference to how quickly you build equity in your home.
While they are often grouped together, offset loans and revolving credit work in quite different ways. Choosing the right one depends less on interest rates and more on your cash flow, savings habits, and how comfortable you are managing your money day to day.
This article explains how each option works, their benefits and limitations, and when one may suit you better than the other.
What Is an Offset Loan?
An offset loan allows you to link one or more savings or transaction accounts to your mortgage. The balances in those accounts are used to reduce the portion of the loan on which interest is calculated.
For example, if your mortgage balance is $600,000 and you have $40,000 across linked accounts, interest is only charged on $560,000. Your savings are not paid into the loan and remain fully accessible, but while they sit there, they reduce your interest cost.
In New Zealand, offset loans are on floating rates and are offered by a limited number of lenders. They are commonly used by households with consistent savings or investors managing multiple accounts.
Pros of Offset Loans
Lower interest without losing access to savings
Your money stays in your accounts and can be used at any time, while still reducing interest on your loan. This works well if you want flexibility without redrawing from your mortgage.
Multiple accounts can be linked
Most offset structures allow several accounts to be linked to one or more loans. This suits families or investors who like keeping money separated for different purposes.
Tax effective use of cash
Rather than earning taxable interest in a savings account, your money reduces mortgage interest, which is not taxed. In most cases, this delivers a better overall outcome.
Clear separation between loan and savings
The loan balance remains unchanged, which makes tracking progress straightforward and avoids confusion around redraws.
Cons of Offset Loans
Limited lender choice
Not all banks offer offset facilities. If your current lender does not support offsets, you will need to refinance to access this option.
Floating rates only
Offsets are almost always tied to floating rates, which can be higher than fixed rates. The offset benefit needs to outweigh the rate difference.
Requires savings discipline
If your account balances regularly drop to near zero, the benefit of an offset structure is limited.
What Is a Revolving Credit Facility?
A revolving credit facility is essentially a large overdraft secured against your home. It has a set limit and your everyday income is paid directly into the account, reducing the loan balance immediately. Spending money increases the balance again.
Interest is calculated daily on the outstanding balance and is charged at a floating rate. There are no fixed principal repayments, only interest, which gives maximum flexibility.
Revolving credit is often used by people with variable income, such as contractors or business owners, or by disciplined borrowers who consistently run their balance down over time.
Pros of Revolving Credit
Maximum flexibility
You can pay extra into the loan at any time and withdraw funds when needed without applying for a new loan.
Every dollar works immediately
All income reduces interest from the moment it hits the account, even if it is only there temporarily.
Useful cash buffer
Revolving credit can double as an emergency fund, providing access to funds when unexpected expenses arise.
Widely available
Most major New Zealand banks offer revolving credit facilities, often as part of a standard loan restructure.
Cons of Revolving Credit
Requires strong discipline
Easy access to funds can lead to overspending. Without good budgeting habits, balances may not reduce over time.
No separation of savings
All money sits in one account, which can make it harder to mentally allocate funds for specific goals.
Floating rate exposure
Like offsets, revolving credit is on a floating rate, so interest costs can rise if rates increase.
Potential fees
Some lenders charge monthly fees for revolving credit accounts, which should be factored into the decision.
Offset vs Revolving Credit: Which Suits You Best?
There is no universal answer. The right option depends on how you manage money.
An offset loan often suits people who:
- Maintain steady savings balances
- Prefer clear separation between savings and debt
- Want flexibility without temptation to overspend
A revolving credit facility often suits people who:
- Have variable or irregular income
- Actively manage cash flow
- Are disciplined with spending and budgeting
This is where working with an adviser makes a difference. At Capital Advice, we help clients choose and structure loans that suit their behaviour, not just what looks good on paper. You can learn more about how we approach loan structuring for home loans.
Getting the Structure Right
Choosing between offset and revolving credit affects how flexible your mortgage will be over the next several years.
When reviewing your options, it is worth considering:
- How stable your income is
- How much cash you usually keep on hand
- If you are likely to require access to funds
- Your comfort with active money management
These features are often reviewed when refixing or reassessing lending, which is why they commonly come up during a mortgage review.
If you are a first-home buyer, understanding these options early can help set you up for smarter decisions later on.
Final Thoughts
Offset loans and revolving credit can both be powerful when utilised correctly. The wrong choices, however, can create unnecessary stress or limit your progress.
If you are unsure which option fits your situation, or whether a combination would work better, a short conversation can save years of trial and error. You can contact Capital Advice to talk through your circumstances and get guidance that aligns with how you actually manage your money, not how a brochure assumes you do.
Share this
Date
February 16, 2026