A redraw facility is a feature on most variable-rate Australian home loans that allows you to withdraw extra repayments you've previously made — funds beyond your minimum required repayments.
It can be a useful safety net, but it works very differently from an offset account, and the differences matter.
How Redraw Works
- You make extra repayments on top of your scheduled minimum
- Those extra payments reduce your loan balance, saving interest
- If you need that money back later, you can request a "redraw"
- The funds are withdrawn from your loan and your balance increases again
For example: you make $30,000 in extra repayments over 3 years. Your loan balance is $30,000 lower than it would have been. If you need a new car, you can redraw all $30,000 — your loan balance jumps back up by $30,000.
Redraw vs Offset Account
| Feature | Redraw | Offset |
|---|---|---|
| How it works | Extra payments reduce loan balance | Funds in linked account offset balance |
| Access to funds | Request redraw (1–3 days) | Instant via debit card / transfers |
| Tax treatment | Can complicate deductibility | Cleaner for investment loans |
| Available with fixed rates | Sometimes | Rarely |
| Cost | Usually free or low fee | Often included with package fee |
The Tax Trap with Redraw on Investment Loans
For investors, redraw can create a tax problem. Here's the issue:
- You make extra repayments on your investment loan
- Later you redraw funds for personal use (e.g. a holiday, car)
- The ATO views this as new borrowing for non-investment purposes
- That portion of interest is no longer tax deductible
This is why offset accounts are typically preferred for investment loans — they don't have this complication.
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When Redraw Makes Sense
- Owner-occupied loans where deductibility isn't an issue
- Borrowers without a transaction account need — if you don't want a separate account, redraw keeps things simple
- Long-term savings parked away — for funds you don't plan to access regularly
Redraw Restrictions to Know
Some lenders impose:
- Minimum redraw amount (often $500–$1,000)
- Limits on number of redraws per year
- Small redraw fees
- Lender discretion to refuse a redraw (rare but legally possible)
Read your loan documents to confirm what your lender allows.
Redraw with Fixed-Rate Loans
Most fixed-rate loans either don't offer redraw or limit it. Some allow redraw of extra repayments only above a yearly cap (e.g. $20,000 extra per year). Always check terms before relying on redraw with a fixed loan.
Bottom Line
Redraw is a useful feature for owner-occupier borrowers who want flexibility without the complexity of an offset account. For investors, an offset is almost always cleaner. Either way, knowing which feature is on your loan — and how to use it — is part of getting the most out of your mortgage.
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