Using your mortgage to buy a car is one of the most common money questions we hear, and on the surface the maths looks obvious. Your home loan almost certainly carries a lower interest rate than any car loan, so why borrow twice? Before you tap your redraw or pull money out of your offset account, it pays to see the full picture, because the cheapest rate is not always the cheapest way to pay for a car.
A home loan usually has the lowest rate
With the Reserve Bank cash rate at 4.35 per cent and the next decision due on 29 September 2026, borrowing costs are front of mind. Home loans are secured against property and priced accordingly, so their rates typically sit well below secured car loan rates, and much further below unsecured personal loans. That gap is the whole appeal of funding a car from your mortgage. Before you assume the home loan wins, it is worth checking where car loan rates actually sit today on our car loan rates page.
Redraw and offset: how they actually work
They are not the same thing, and the difference matters. According to Moneysmart, the two work like this:
- An offset account is an everyday transaction account linked to your home loan, and its balance reduces the part of your loan that is charged interest. Keep $20,000 in an offset against a $500,000 loan and you are only charged interest on $480,000, while the money stays yours to spend.
- A redraw facility holds the extra repayments you have already made into the loan, and lets you withdraw some of them under your lender's rules.
Both can cut your interest while the money is parked against the loan, and both hand that money back the moment you spend it on a car.
The catch: your mortgage runs for decades
Here is where the low rate can mislead you. A car is a depreciating asset that most people keep for around ten years. A mortgage usually runs for 25 to 30 years. If you add the price of a car to your home loan and only make your normal repayments, you can still be paying interest on that car long after you have sold it. A lower rate stretched over three decades can cost far more in total interest than a higher rate cleared in five to seven years. Run both options through a repayment calculator and compare the total interest, not just the monthly figure.
Drawing the money out lifts your home loan interest
Whether you use offset or redraw, taking the money out has the same effect: the balance your lender charges interest on goes back up. The interest you were saving by keeping that money against the loan stops the day you buy the car. In other words, that money was already working for you at your home loan rate. Spending it is not free, even though no new loan appears on your statement.
The tax rule most people get wrong
Many borrowers assume that because the debt sits inside a home loan, the interest might be deductible. It is the opposite. The ATO ruling TR 2000/2 states that the deductibility of interest is determined by the use of the borrowed money, not by the security given for it. A redraw is treated as a separate borrowing, so if you redraw to buy a private car, that interest is not deductible. If the car is used partly for business, only that portion may be claimable, and a mixed use loan has to be apportioned. This is general information rather than tax advice, so confirm your situation with a registered tax agent.
What a dedicated car loan does differently
A car loan is built around the asset. Its term is usually set to match the life of the car, commonly five to seven years, so the debt is cleared while you still own it. It also keeps the car debt separate: your home equity and your offset savings stay intact, and the borrowing has a clear end date rather than blending into a 30 year mortgage. Secured car loan rates are higher than home loan rates but well below unsecured options. It is worth comparing options on our lenders page and checking live car loan rates so you are weighing the real numbers rather than assumptions.
If you still want to use your home loan
Using your mortgage can still make sense, especially if you are disciplined. The key is to repay the car amount on a car length timeline rather than a mortgage one. Set up extra repayments that clear the borrowed sum over about five years, so you are not carrying it for decades. Keep records if any part of the car is used for work, protect a sensible equity buffer rather than draining your redraw to zero, and if your home loan structure is holding you back, look at whether a refinance would give you a cheaper rate or better terms.
The bottom line
Using your mortgage to buy a car can lower the rate you pay, but the rate is only one part of the cost. The long mortgage term, the lost offset saving and the absence of a tax deduction on private use all chip away at the apparent win. Compare the total interest of each path, match the repayment period to how long you will actually keep the car, and treat the decision as a genuine comparison rather than a default. This is general information only, and it is worth a conversation with your lender or a licensed adviser before you commit.
