Redraw Facility Explained — How It Works and the Risks (2026)
A redraw facility lets you access extra repayments you’ve made on your home loan. It is a standard feature on most variable rate home loans in Australia, but it has important differences from an offset account — and some risks you should understand.
What Is a Redraw Facility?
A redraw facility allows you to withdraw money you have previously paid above the minimum required repayment on your home loan.
How it works:
- You make extra repayments beyond the minimum
- These extra payments reduce your outstanding loan balance
- The extra amount you’ve paid (above minimum) is “available to redraw”
- You can access this amount via online banking, phone, or branch (depending on your lender)
Example:
- Minimum monthly repayment: $3,200
- You pay: $3,700/month
- Extra repayment per month: $500
- After 12 months: $6,000 available in redraw
Redraw vs Offset Account
These are often confused — but they are structurally very different:
| Feature | Redraw | Offset Account |
|---|---|---|
| Where the money sits | Inside your loan (reduces principal) | In a separate linked bank account |
| Accessibility | Subject to lender’s redraw policy | Instant — ATM, EFTPOS, transfer |
| Minimum redraw amount | Often $1,000–$2,500 minimum | No minimum |
| Government deposit guarantee | No | Yes (up to $250k per ADI) |
| Tax risk on investment loans | Yes — redrawn funds may lose deductibility | No — funds never enter the loan |
| Interest rate on funds | Loan rate (by reduction) | Loan rate (by reduction) |
For owner-occupied loans: redraw and offset are broadly similar in interest savings. The practical difference is accessibility.
For investment property loans: offset is almost always preferable. See the tax section below.
How to Access Redraw
Most lenders offer redraw via:
- Online banking — easiest and fastest (most lenders)
- Mobile app — common for modern lenders
- Phone banking — may require call centre processing time
- Branch — slowest; may require advance notice
Important: Redraw is not guaranteed. Some lenders reserve the right to:
- Require advance notice (e.g., 30 days on some fixed rate loans)
- Set minimum redraw amounts ($1,000, $2,000, or $2,500)
- Restrict redraw during fixed rate periods
- Charge a fee per redraw transaction
- In rare circumstances, freeze redraw access if the lender’s own financial position is stressed
These conditions vary significantly by lender. Read your loan contract.
Redraw on Fixed Rate Loans
Fixed rate loans typically restrict or prohibit redraw. Because fixed rate loans also restrict extra repayments (typically capped at $10,000/year), there may be limited funds available to redraw anyway.
If you need regular access to funds, a variable rate loan with offset is generally more suitable than a fixed rate loan with redraw.
The Tax Risk on Investment Property Loans
This is the most important risk borrowers often overlook.
The problem: If you make extra repayments into an investment property loan and then redraw those funds for a personal purpose (holiday, personal car, renovating your own home), the ATO may treat the redrawn portion as a new borrowing for a personal purpose — making the interest on that amount non-deductible.
Example:
- $600,000 investment loan — interest is 100% deductible
- You pay $40,000 extra, reducing balance to $560,000
- You redraw $40,000 for a kitchen renovation on your own home
- The ATO may treat $40,000 of the loan as personal — reducing deductibility
This is sometimes called “loan contamination”. Once contaminated, it is difficult (and often impossible) to restore full deductibility.
The solution: For investment property loans, use an offset account instead of making extra repayments. Funds in offset never enter the loan — you can move them anywhere without tax consequences.
Speak with a registered tax agent about your specific investment loan situation.
Is Redraw Safe for Owner-Occupied Loans?
For an owner-occupied home loan (not used for investment), there is generally no tax issue with redraw. The loan interest is not deductible either way, so redrawing funds for any purpose does not affect your tax position.
The main considerations for owner-occupied redraw are:
- Accessibility — can you get funds when you need them?
- Discipline — will you redraw for non-essential purposes, undoing your debt reduction?
- Lender restrictions — are there minimum amounts or fees?
When Does Redraw Make Sense?
Redraw is a useful feature for owner-occupied borrowers who:
- Want to make extra repayments but may need occasional access to the funds
- Have a loan without an offset account (basic/no-fee loans often have redraw but not offset)
- Want a simple, low-fee structure without an annual offset package fee
For most borrowers, offset accounts offer more flexibility, better accessibility, and (for investors) fewer tax complications.
Frequently Asked Questions
Can the bank take my redraw funds?
Technically, most loan contracts allow a lender to reduce or freeze redraw access in extreme circumstances. This has occurred rarely in Australian banking history. The funds are not legally “yours” in the same way a bank account deposit is — they have reduced your loan principal. For peace of mind, an offset account offers stronger legal protection for your funds.
Does redrawing affect my interest rate?
No. Redrawing increases your outstanding loan balance, which means more interest is charged — but at the same rate. Redraw simply reverses the benefit of your extra repayments.
Is there a tax deduction for using redraw to invest?
If you redraw from an owner-occupied home loan and invest the funds in income-producing assets (shares, managed funds, investment property), the interest on the redrawn portion may be deductible — because the borrowed money is now used for investment. This is complex tax territory — speak with a registered tax agent before proceeding.
Related Guides
- What Is a Mortgage Offset Account?
- Offset Account vs Extra Repayments
- Extra Repayments — How Much Do They Save?
- Paying a Lump Sum Off Your Mortgage
- Mortgage Repayment Hub
This article provides general information about redraw facilities in Australia. Tax implications of redraw on investment property loans are complex — speak with a registered tax agent before making decisions. For advice on loan strategy tailored to your situation, speak with a licensed mortgage broker. Find one through MoneySmart.