Last reviewed September 2026 by Megan Birot, Content Editor, OurTop10. Figures checked against the sources named in the article.A redraw facility lets you take back money you have paid into your home loan above the minimum repayment. Pay $10,000 extra over a year, and the redraw is the $10,000 you can pull out again. While the money sits in the loan it reduces the balance interest is charged on. That is the whole feature, and it is on almost every variable rate loan in Australia.
The trouble is that redraw looks like a savings account and is not one. The money belongs to the loan, the lender sets the rules for getting it back, and those rules can change. This guide covers how redraw works, what it saves you, where it catches people, and when an offset account is the better tool.
How a redraw facility works
Every home loan has a minimum repayment. Anything you pay above it goes against the principal, and the lender keeps a running tally of that surplus. That tally is your available redraw.
Say your minimum repayment is $3,600 a month and you pay $4,000. After a year you have paid $4,800 more than required. Your loan balance is $4,800 lower than it would otherwise be, you have paid less interest as a result, and you can ask the lender for up to $4,800 back.
Redraw is usually done through the lender’s app or online banking and lands in your transaction account the same day or the next. Some lenders set a minimum redraw amount. A few still charge a fee per redraw, though most of the major lenders now offer it free on their standard variable products.
Most fixed rate loans either do not offer redraw or cap the extra repayments that create it, often at around $10,000 a year. If redraw matters to you, that is a reason to keep at least part of the loan variable, which our guide to fixed vs variable home loans goes through.
What it saves you
Interest on a home loan is calculated daily on the outstanding balance. Every dollar of extra repayment sitting in the loan is a dollar not being charged interest. On a $600,000 loan at 6%, keeping $20,000 ahead saves around $1,200 a year in interest, and if you leave it there the loan finishes earlier: roughly a year and a half sooner on a 30-year term, with the extra repayments kept up.
That is the same saving an offset account gives you. The difference is in how easily you can get the money back, and who controls it.
The pros
- It comes free with most variable loans. No package fee, no separate account to run.
- It rewards discipline. Money in redraw takes a deliberate step to get out, which for a lot of people is the point. Savings in an everyday account get spent.
- It cuts interest from day one. The saving is the same as an offset, dollar for dollar.
- It is a safety net. A buffer of a few months’ repayments in redraw is the cheapest emergency fund available, because it is earning the loan rate rather than a savings rate.
The cons, and the one that matters most
The lender controls it. Redraw is a feature of the loan contract, not your money in an account. A lender can reduce or freeze available redraw, and several did during 2020 when they recalculated minimum repayments after rate cuts, absorbing borrowers’ surplus into the loan without warning. It is legal, it is in the fine print, and it does not happen with an offset account, where the money is yours in a deposit account.
It can raise your repayment. Some lenders recalculate the minimum repayment when you redraw, so pulling money out increases what you owe each month. Others leave it alone. Ask.
Tax, for investors. This is the trap that costs the most. If you redraw from an investment property loan to pay for a holiday or a car, the redrawn portion of the loan is now private borrowing and the interest on it stops being deductible. The ATO treats a redraw as new borrowing for whatever purpose you used it for. Investors should keep spare cash in an offset, never in redraw.
Fixed loans mostly do not have it. Covered above.
Fees and limits at some lenders. Minimum amounts, a cap on free redraws a year, or a fee per transaction. Less common than it used to be, still worth checking.
Extra repayments and redraw calculator
See what paying a little more each month does to the interest bill and the loan term, and how big a redraw buffer it builds.
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Redraw or offset: the short answer
Use redraw if you are an owner-occupier, want the interest saving without paying a package fee, and are happy for the money to be a little harder to reach. Use an offset if you want the cash to stay in your own name, you might rent the property out one day, or you run your salary and spending through the account and want every dollar working against the loan while it sits there. Plenty of borrowers use both: an offset for the everyday float and redraw for the long-term surplus.
The full comparison, including what an offset costs and when the package fee pays for itself, is in our guide to offset vs redraw.
Getting the most out of a redraw
- Set the repayment above the minimum by direct debit, so the surplus builds without a decision each month
- Keep a buffer of three to six months of repayments in there before you touch it for anything else
- Check the available redraw on each statement, and read any notice from the lender about repayment recalculation
- If you are ever going to rent the property out, move the surplus to an offset before you do
- When refinancing, confirm redraw is free and unlimited on the new loan, because it is not on all of them
A broker will check the redraw terms across lenders before you settle, which is the moment to get it right. Our ranked broker lists for Sydney and Melbourne are a place to start, and first home buyers should read the best home loans for first home buyers guide for the other features worth paying for.
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FAQs for Understanding the Home Loan Redraw: Pros and Cons
A feature on most variable home loans that lets you withdraw extra repayments you have made above the minimum. While the money sits in the loan it reduces the balance interest is charged on.
No. Redraw is money paid into the loan that the lender lets you take back. An offset is a separate deposit account in your name whose balance is netted off the loan for interest. The interest saving is the same; the control and the tax treatment are different.
With some lenders, yes. They recalculate the minimum repayment on the higher balance. Others leave the repayment unchanged and extend the time to pay off the loan. Check your lender’s policy before you redraw.
Yes. Redraw is a loan feature, not a deposit, and the lender can reduce or freeze it. Some did in 2020 when they recalculated repayments after rate cuts. Money in an offset account cannot be absorbed this way.
Usually not. Most fixed loans cap extra repayments at around $10,000 a year and either do not offer redraw or restrict it until the fixed term ends.
Carefully, or not at all. Redrawing from an investment loan for private spending turns that portion into non-deductible debt in the ATO’s eyes. Investors are generally better off keeping spare cash in an offset account.
Megan Birot
Content Editor, OurTop10
Megan Birot is OurTop10’s Content Editor. She holds a Certificate IV in Finance and Mortgage Broking (FNS40821) and checks every guide on the site against current lender policy, government scheme rules and state revenue office thresholds before it goes live.
She also runs the editorial reviews on OurTop10’s broker, accountant, conveyancer and buyer’s agent shortlists, and writes the media releases for its quarterly mortgage stress research.