Redraw Facilities: How They Work

A redraw facility is one of the most commonly misunderstood features on an Australian home loan. It is not a savings account, and it is not the same as an offset account — but used well, it can help you reduce interest costs and give you a degree of financial flexibility over the life of your loan.

This guide explains how redraw facilities work in practice, how they compare to offset accounts, and what to watch for when deciding whether to use yours.

What Is a Redraw Facility?

A redraw facility is a feature on many variable rate home loans that allows you to withdraw extra repayments you have made on top of your minimum required repayment. The key word is extra — you can only redraw money you have paid in above and beyond what the lender requires.

When you make extra repayments, those funds reduce your outstanding loan balance. Because interest is calculated daily on your remaining balance, a lower balance means less interest charged each day. If you later need those funds, a redraw facility lets you pull them back out — subject to your lender's rules.

It is important to understand that redraw is a feature of your home loan, not a separate account. The money sits inside your loan, not in a standalone deposit account. This has practical implications for how easily and quickly you can access it.

How Redraw Works in Practice

Your required monthly repayment might be $2,500. If you consistently pay $3,000, you are making $500 in extra repayments each month. After 12 months, you have built up $6,000 in available redraw (before interest savings are factored in).

That $6,000 has been reducing your loan balance throughout the year, saving you interest on that amount. If you need access to the funds — for a renovation, an unexpected expense, or another purpose — you can request a redraw, and those funds are transferred to your nominated account.

What happens after a redraw is important to understand. When you redraw funds, your loan balance increases back to what it was before those extra repayments were made. This means your interest charges will rise again, and depending on your repayment structure, your minimum repayment may also increase to ensure the loan is repaid within the original term.

Redraw vs Offset: Key Differences

Redraw facilities and offset accounts both reduce the interest you pay on your home loan, but they work differently and carry different practical implications.

An offset account is a separate transaction account linked to your loan. Money in an offset account reduces the balance on which interest is calculated, but the funds remain instantly accessible like any bank account. You can deposit and withdraw freely without any restrictions, fees, or delays in most cases.

A redraw facility keeps the money inside the loan itself. Access depends on your lender's rules, which can include processing times of one to three business days, minimum redraw amounts, and in some cases fees. Lenders can also restrict access to redraw during financial hardship, which is not possible with an offset account where the funds legally remain yours.

Key differences to understand:

• Offset funds are in a separate account and instantly accessible; redraw funds are inside the loan and subject to lender conditions
• Some lenders have minimum redraw amounts or charge fees to access funds
• Redraw access can take one to three business days with some lenders
• Both reduce interest equally if the balance is the same, but offset provides more certainty of access
• For investment loans, mixing personal and investment redraw can create tax complications — seek advice from an accountant

When Redraw Makes Sense

Redraw facilities are a practical tool for borrowers who want to get ahead on their loan and reduce interest, without needing instant or frequent access to those extra funds. They work particularly well for borrowers who make regular extra repayments and occasionally need access to a lump sum — for example, for home maintenance or a planned purchase — rather than needing day-to-day flexibility.

Redraw is also well suited to borrowers on basic variable loans that do not include an offset account. Many basic or low-fee variable loans offer a redraw facility as their primary savings feature, which keeps the loan cost-effective while still allowing interest savings from extra repayments.

Redraw may suit you if:

• You make regular extra repayments and want to reduce your loan balance faster
• You do not need day-to-day access to your extra funds
• You are on a basic variable loan without an offset account
• You want a safety net for occasional larger expenses without maintaining a separate savings account

When to Think Carefully About Using Redraw

If you have an investment property loan, be cautious about redrawing funds for personal use. The ATO's position is that the purpose of borrowing determines tax deductibility. If you redraw from an investment loan and use the funds for personal purposes, that portion of the loan may lose its tax deductibility — permanently. This is a complex area and worth discussing with an accountant before redrawing from any investment loan.

It is also worth understanding that redraw is not guaranteed to be available in all circumstances. Lenders have the right to restrict or remove access to redraw during financial hardship or if your account falls into arrears. If certainty of access is important to your financial planning, an offset account offers more protection.

Repayment Frequency and Interest Savings

One practical strategy for building redraw while reducing interest is switching from monthly to fortnightly repayments. When you pay half your monthly repayment every two weeks, you effectively make 26 half-payments — the equivalent of 13 full monthly payments — over the course of a year. That extra month's payment goes directly toward reducing your loan balance and building your available redraw.

Home loan interest is calculated daily on your outstanding balance, so reducing that balance earlier in the month — through fortnightly rather than monthly payments — also results in slightly less interest charged each period.

Check Your Borrowing Capacity

Use our borrowing capacity calculator to see what you may be able to borrow and explore loan options with redraw and offset features side by side.