Redraw Facility is a feature that lets you access extra repayments you've made on your loan. If you pay more than the minimum required, you can "redraw" that surplus cash when you need it.
How Redraw Works
When you make extra repayments on a loan with a redraw facility, the surplus amount becomes available for withdrawal.
Example: $400,000 home loan at 6.00% p.a.
- Minimum monthly repayment: $2,398
- You pay: $3,000/month
- Extra repayment: $602/month
- After 12 months: $7,224 available to redraw
You can withdraw the $7,224 anytime—either in full or partial amounts.
Redraw vs Offset Account
Both features help you save interest, but they work differently.
Redraw Facility
- How it works: Extra repayments reduce your loan balance. You can withdraw the extra amount later.
- Interest savings: Immediate (reduces loan balance instantly)
- Access: May have withdrawal limits, fees, or processing times
- Flexibility: Money is "locked in" the loan until you redraw
- Typical fee: $20-$50 per withdrawal
Offset Account
- How it works: A linked transaction account. The balance "offsets" your loan, reducing interest charged.
- Interest savings: Daily (but loan balance stays the same)
- Access: Instant (via debit card, transfers, etc.)
- Flexibility: Full access to funds 24/7
- Typical fee: $10-$15/month account fee
Example: $10,000 surplus on a $400,000 loan at 6.00%
- Redraw: Loan balance drops to $390,000. Interest saved: $600/year
- Offset: Loan balance stays $400,000. $10,000 in offset account. Interest saved: $600/year
Same interest savings, but offset gives you instant access without withdrawal fees.
When to Use a Redraw Facility
✅ Emergency Cash Access
If you lose your job or face unexpected expenses, you can redraw extra repayments instead of using high-interest credit cards.
Example:
- Redundancy after 5 years of extra repayments
- $40,000 available to redraw
- Use $2,000/month to cover living costs for 12 months while job hunting
- Avoid taking a personal loan at 12-15% p.a.
✅ Saving for a Goal
Make extra repayments to save for a renovation, car, or investment property deposit.
Example: Saving for a bathroom reno
- Pay extra $500/month for 2 years
- Total saved: $12,000
- Redraw $12,000 when ready to renovate
- Bonus: Saved ~$720 in interest over 2 years (vs keeping it in a savings account taxed at 30%)
✅ Lower Fees Than Offset
If your lender charges $15/month for an offset account ($180/year), but only $30 per redraw, and you redraw once or twice a year—redraw is cheaper.
Example:
- Offset account fee: $180/year
- Redraw facility: $0 monthly fee, $30 per withdrawal
- You redraw twice a year: $60 total
- Savings: $120/year by using redraw instead of offset
Redraw Facility Restrictions
1. Withdrawal Limits
Many lenders cap how much you can redraw at once or require a minimum balance to stay in the loan.
Common restrictions:
- Minimum $500 per redraw
- Maximum 2-3 redraws per month
- Must leave $10,000 in the loan (can't redraw everything)
2. Processing Times
Redraw isn't always instant. It can take 1-5 business days for funds to reach your account.
Example:
- Car breaks down, need $3,000 for repairs
- Submit redraw request Monday morning
- Funds arrive Thursday afternoon
- Delay: 3 days (offset would have been instant)
3. Redraw Fees
Most lenders charge $20-$50 per withdrawal.
Example:
- Redraw $5,000 for a holiday
- Redraw fee: $30
- Cost: 0.6% (not huge, but adds up if you redraw frequently)
4. Fixed Loans Have Strict Limits
Fixed-rate loans often don't allow redraw at all, or only allow redraw of amounts above the annual extra repayment cap.
Example: Fixed loan with $10,000/year extra repayment cap
- You pay $15,000 extra over 2 years ($7,500/year)
- Because you stayed under $10K/year, you can redraw the $15,000
- If you'd paid $25,000 one year, you could redraw $15,000 (the amount over the $10K cap), but not the first $10K
Complicated? Yes. This is why variable loans are more flexible.
5. Lender Can Change the Rules
Some loan contracts let lenders suspend or restrict redraw access if they deem it necessary (rare, but possible in financial crises).
2020 example: During COVID-19, some lenders temporarily paused redraws for borrowers seeking hardship assistance.
Interest Savings with Redraw
Extra repayments (even if you redraw them later) save you interest for the time they're in the loan.
Example: $400,000 loan at 6.00% over 30 years
Scenario 1: Minimum repayments only
- Total interest paid: $463,000
Scenario 2: Extra $500/month for 5 years, then redraw $30,000
- Extra repayments: $500/month × 60 months = $30,000
- Interest saved during those 5 years: ~$9,000
- You redraw $30,000 after 5 years (to buy a car)
- Loan balance is now $30,000 lower than Scenario 1
- Total interest saved over life of loan: ~$60,000 (even though you redrew $30K)
Why? Because paying extra for 5 years reduced the balance, which reduced interest, which accelerated principal paydown.
Redraw vs Personal Loan for Big Purchases
If you need $30,000 for a car, you have two options:
- Redraw from your home loan (if you have $30K available)
- Personal loan at 9-12% p.a.
Example:
- Option 1: Redraw $30,000 from home loan (6.00% p.a.)
- Option 2: Personal loan $30,000 at 10.00% p.a. over 5 years
Over 5 years:
- Redraw (home loan rate): Interest ~$4,800
- Personal loan: Interest ~$8,000
- Savings by using redraw: $3,200
Caution: Redrawing extends your home loan term unless you re-commit to paying it off quickly.
Tax Implications of Redraw (Investment Properties)
For investment properties, redrawing funds can affect tax deductibility.
General rule:
- Interest on investment loan: Tax-deductible
- If you redraw for personal use (car, holiday, reno on your own home): The interest on the redrawn amount is NOT tax-deductible
Example: $500,000 investment property loan
- You make $50,000 in extra repayments
- Loan balance: $450,000
- You redraw $50,000 to buy a personal car
- Loan balance: Back to $500,000
- BUT: Interest on $50,000 is no longer tax-deductible (it's now a personal expense)
Tax-deductible interest: Only on $450,000 Non-deductible interest: On $50,000
Tip: Keep detailed records and speak to an accountant. Some investors use separate loans or offset accounts to avoid this complexity.
How to Maximize Redraw Benefits
1. Pay Extra Regularly
Even small extra repayments add up.
Example: Extra $200/month on a $400K loan at 6.00%
- After 3 years: $7,200 available to redraw
- Interest saved: ~$1,300
- Loan paid off: 4 years faster (if you don't redraw)
2. Use It as a Safety Net
Treat redraw like an emergency fund. Keep paying extra, but only touch it if you lose your job or face a crisis.
3. Redraw for Smart Investments
If you redraw to buy an income-producing asset (investment property, shares), the interest may be tax-deductible.
Example:
- Redraw $60,000 from home loan
- Use it as a deposit on an investment property
- Interest on $60,000 may be tax-deductible (consult accountant)
Redraw vs Line of Credit
A Line of Credit is like a permanent redraw facility with full flexibility.
Line of Credit
- Borrow up to a limit (e.g., $100K)
- Pay interest only on what you use
- No withdrawal fees
- Full flexibility
Redraw
- Can only access extra repayments you've made
- May have fees and limits
- Interest rate is your home loan rate (usually lower than LOC)
Example: $400K loan with $50K available to redraw
- Redraw $20K: Pay home loan rate (6.00%)
- Line of Credit $20K: Pay LOC rate (7.50%)
- Interest saving with redraw: $300/year
Common Redraw Mistakes
❌ Relying on Redraw as Your Only Emergency Fund
If your lender suspends redraw access (rare but possible), you're stuck.
Better approach: Keep 3 months' expenses in a separate savings account, use redraw as a secondary buffer.
❌ Redrawing Too Often
At $30-$50 per withdrawal, frequent redraws add up.
Example: Redraw 10 times a year at $30/pop = $300/year in fees.
Better approach: Use an offset account if you need frequent access.
❌ Not Tracking Redraws on Investment Loans
Tax deductibility gets messy if you can't prove what the redrawn funds were used for.
Better approach: Keep receipts and records. Use offset instead if you're unsure.
Current Lenders Offering Free Redraws (2026)
Some lenders don't charge redraw fees:
- Online lenders: Often offer unlimited free redraws (check T&Cs)
- Big 4 banks: Typically charge $20-$50 per redraw
- Credit unions: Some offer free redraws (but may have higher rates)
Tip: Ask your NIK Finance broker which lenders offer free or low-cost redraws.
Final Thoughts
Redraw facilities are a useful safety net and interest-saving tool—but they come with restrictions. If you value instant access and flexibility, an offset account is better (despite the monthly fee). If you rarely need access and want to save on fees, redraw is a solid choice.
Best for:
- Disciplined savers who rarely need to access funds
- Emergency backup (job loss, medical expenses)
- Saving for a specific goal (reno, car, investment deposit)
Not ideal for:
- Frequent access (use offset instead)
- Investment loans where you'll redraw for personal use (tax complexity)
- Fixed loans (strict limits apply)
Speak to a NIK Finance broker about whether redraw or offset suits your situation better.