A redraw facility allows you to make extra repayments on your home loan and access those funds again later if you need them. It combines the interest-saving benefit of paying down your loan faster with the safety net of knowing you can retrieve those funds in an emergency.
Every extra dollar you put into your home loan reduces the outstanding principal. Since interest is calculated on the principal balance, a lower balance means less interest accrues each period. More of each regular repayment goes toward principal, and the loan is paid off faster.
On a $550,000 loan at 6.5%, an extra $500/month reduces the loan term from 30 years to approximately 23.5 years and saves approximately $175,000 in total interest. The earlier in the loan term you make extra repayments, the greater the compounding benefit.
With a redraw facility, you can withdraw extra repayments you have made, subject to the lender's conditions. These conditions typically include:
| Feature | Redraw | Offset |
|---|---|---|
| Where funds are held | Inside the loan | Separate linked account |
| Interest saving | Identical if same amount | Identical if same amount |
| Access to funds | Application required; lender can restrict | Instant (transaction account) |
| Lender discretion | Can be frozen or restricted | Funds are yours, freely accessible |
| Investor tax treatment | Redrawn funds lose deductibility if used for personal purposes | Separate account — easier to manage |
| Typical availability | Variable rate loans; often unavailable on fixed | Variable rate loans; rarely on fixed |
Lenders can restrict redraw: Unlike an offset account (which holds your own money in a deposit account), redraw funds are technically held within the loan. In hardship situations, some lenders have frozen redraw access or required formal approval before allowing access. This is rare, but it has occurred. If liquidity is important to you, an offset account provides stronger protection.
Most fixed rate home loans do not offer redraw. Some lenders restrict or prohibit extra repayments on fixed rate loans altogether (or cap them at $10,000–$30,000 per year). If you are on a fixed rate and want to make extra repayments, check your loan contract for restrictions and potential break cost implications.
This is the most important difference between redraw and offset for investment property loans. If you redraw funds from an investment loan and use them for personal purposes, the ATO considers the portion of the loan used for personal purposes to be non-deductible. You cannot then claim the interest on the redrawn amount. This is the "mixed-purpose loan" trap. With an offset account, personal funds are clearly separate from the loan, avoiding this complication.
Redraw is suitable when:
How offset accounts compare and when they are preferable to redraw.
Read guide →How to split your loan to get fixed and variable features simultaneously.
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