Redraw facility
The ability to take back extra repayments you have already made on your loan.
When you pay more than the minimum, the surplus reduces your loan balance and cuts interest. A redraw facility lets you withdraw that surplus later if you need it.
The critical difference from an offset account is ownership. Extra repayments legally belong to the loan; redrawing them is a new borrowing. Money in an offset account remains yours throughout.
That distinction decides deductibility. Redraw money used for private purposes taints the loan, permanently reducing the deductible portion if the property later becomes an investment.
Some lenders also apply a minimum redraw amount or limit the number of free withdrawals each year, which makes redraw a poor substitute for a genuine emergency fund. If instant access matters, an offset account is the safer structure even when the headline rate is slightly higher.
Where redraw goes wrong
You pay $80,000 extra into your home loan, redraw it for a car, then convert the home to a rental. The redrawn portion is a private borrowing and its interest is not deductible.
The bit people get wrong
Banks can reduce, freeze or remove redraw availability, and several have done so during periods of stress. Money in an offset account is far less exposed to that risk.
Common questions
Is redraw or offset better?
Offset is more flexible and protects future deductibility. Redraw is often available on lower-rate basic loans, so the trade-off is rate against flexibility.
Does redraw cost anything?
Many lenders allow free online redraw, though some charge per withdrawal or impose minimum amounts. Check before relying on it as an emergency fund.
Does redrawing increase my repayments?
It restores the balance you had reduced, so more interest accrues. Depending on the loan, the term extends or repayments rise.
Run your own numbers