A redraw facility is a loan feature that lets you withdraw any extra repayments you've made above the minimum required. If you've been paying $3,000 a month against a $2,400 minimum, your $7,200 of extras after a year sits as "available redraw" — accessible if you need it back.
How redraw works
When you make a repayment above the minimum, the surplus goes directly into the loan balance, reducing the principal. The interest the bank charges drops because the balance is lower. The surplus is recorded as available redraw — money you've prepaid against the loan but can claw back if needed.
Example over 12 months on a $600,000 loan at 6%, $2,400 minimum monthly repayment:
- You pay $3,000/month → $600 surplus × 12 = $7,200 prepaid
- Loan balance after 12 months: lower than the minimum-payment trajectory
- Available redraw: $7,200 (plus a small amount of additional principal reduction from the lower balance)
- You can withdraw any portion of that $7,200 at any time (subject to lender's redraw policy)
Redraw vs offset
The single most important comparison in Australian home loan features:
| Redraw | Offset | |
|---|---|---|
| Where the money sits | Inside the loan balance | In a separate transaction account |
| Accessibility | Withdraw to your nominated account, sometimes with fees | Spend like any bank account, instantly |
| Interest saving | Same day-to-day | Same day-to-day |
| Tax for investment loans | Compromises deductibility if redrawn for personal use | Clean — no impact on deductibility |
| Available on fixed loans | More common | Less common |
| Typical fees | Sometimes free online; some lenders charge per redraw | Annual package fee on standard variable; rarely per-transaction |
For owner-occupied loans the choice is mostly preference. For investment property loans, offset is strongly preferred to protect tax deductibility.
The investment property tax trap
This is the most important thing to know about redraw if you have or might have an investment property.
When you take out a loan to buy an investment property, the interest on the original loan is tax-deductible because the borrowed money is used to generate rental income. If you later redraw money from that loan for personal use (a holiday, a car, a renovation on your home), the redrawn portion of the loan is no longer being used for income-producing purposes. The interest on that portion is no longer deductible.
The ATO tracks this proportionally. If you redraw $50,000 from a $400,000 investment loan and use it for personal purposes, 12.5% of the loan's interest becomes non-deductible — even on future repayments. This contamination can't easily be undone.
The fix: don't redraw from investment loans for personal use. Keep personal funds in an offset account (which doesn't affect the loan principal), or in separate personal accounts entirely.
When redraw is the right feature
- Owner-occupier loans where you want a single account, simpler structure, and don't mind a brief delay to access prepaid funds.
- Disciplined savers who want extra repayments locked in but still accessible — redraw adds a small friction that offset doesn't (good for some, irrelevant to others).
- No-package loans where avoiding the $300–$400 annual offset package fee saves more than offset would.
When offset is preferred over redraw
- Investment property loans (always) — to preserve interest deductibility.
- Borrowers parking large balances (salary, savings goals, emergency funds) — the convenience of a normal transaction account compounds over time.
- Borrowers who want maximum liquidity — offset funds are instantly spendable; redraw can take a day and may have fees.
For modelling the interest saving from either feature, see the Offset Account Calculator or the Extra Repayment Calculator.
Frequently asked questions
How does redraw differ from an offset account?
An offset account is a separate transaction account linked to your loan — money sits in the account and reduces the interest-charged balance. A redraw facility is built into the loan account itself — extra repayments physically reduce the loan balance, and redraw is the act of taking them back out later. Both save the same interest day-to-day, but offset preserves a cleaner separation between personal funds and loan principal.
Are redraw withdrawals taxable?
Redrawing money itself is not a taxable event. But for investment property owners, redrawing money for personal use changes the deductible use of the loan and can disrupt the tax deductibility of subsequent loan interest. ATO position: the interest on the redrawn portion is only deductible to the extent it's used for income-producing purposes. Investment owners almost universally prefer offset for this reason.
Is there a fee to redraw money?
Depends on the lender. Many major lenders include unlimited free online redraw on their standard variable products. Some charge $20–$50 per redraw if done at a branch or via paper request. Basic / no-frills loans sometimes restrict redraw frequency or require minimum redraw amounts ($500–$1,000).
Can I redraw on a fixed-rate loan?
Most fixed-rate loans don't allow redraw, or restrict it (e.g. limited amounts per year). Fixed loans usually cap extra repayments anyway — typically at $10K–$20K per year — so the redraw question only applies to that capped surplus. Variable-rate loans almost always allow free redraw of any amount you've prepaid.
What's the catch with redraw?
For owner-occupier loans, no catch — redraw is essentially free flexibility. For investment loans, redraw for personal use breaks the tax deductibility chain. Also: the redraw facility is technically discretionary — lenders have the right (though rarely exercise it) to freeze redraw in financial stress scenarios. Money in an offset account is your money in a transaction account; money in redraw is the lender's discretion to give back.
Does using redraw reset my loan term?
No. Redrawing money increases your loan balance back up, so the minimum required repayments may go up (if you'd previously been ahead of schedule and the lender re-amortises). Some lenders keep the original term; others extend it back. Worth asking your lender how they treat redraw with respect to remaining term and repayment amounts.
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Last updated: 16 May 2026