Redraw Facility

Plain-English definition. A redraw facility lets you withdraw extra repayments you've previously made on top of your minimum loan repayments. The money pulled back out is technically a re-borrowing.

How it works in Australia. Redraw is a standard feature on most variable-rate Australian home loans. Some lenders charge $25–$50 per redraw on basic products; package loans usually offer free redraw. Funds typically clear within 1 business day. Critical tax point: when you redraw, the loan balance increases — and the ATO treats redrawn funds as a new borrowing, with the deductibility of interest depending on what the redraw is used for. If you redraw $100k from your investment loan to renovate your owner-occupier home, that $100k of interest is no longer deductible. This is why investors should never co-mingle savings with their investment loan via redraw.

Concrete example. You owe $480,000 on a $500,000 loan but you've made $35,000 of extra repayments, so the actual balance is $445,000 with $35,000 sitting in redraw. You need $30,000 for a kitchen renovation. You redraw it; balance jumps back to $475,000. If this is your owner-occupier loan, no problem. If it's an investment loan being used for owner-occupier renovations, that $30k of redrawn debt produces non-deductible interest.

Common confusion. Redraw and offset look identical from a cash-flow perspective but they're tax-different. Offset funds remain in your account; redraw funds were paid into the loan and pulled out again. Investors should always use offset, never redraw, for funds that may later be used for non-deductible purposes.