A redraw facility lets you take back extra money you have paid into your home loan. Pay more than your minimum repayment, and the extra builds up as available redraw. Leave it there and it cuts the interest you pay. Need the cash later — for a renovation, a car repair, or an unexpected bill — and you can pull some or all of it back out.
It sounds like a savings account, but it is not one. The money sits inside your loan, and your lender sets the rules for getting it back. This guide explains how a redraw facility works, what it can save you, and the traps to watch out for. For the official guidance, see Moneysmart’s guide to paying off your mortgage faster.
What is a redraw facility?
A redraw facility is a home loan feature that lets you withdraw extra repayments you have made above your minimum required repayment.
Every home loan has a minimum repayment. Anything you pay above that amount goes against your loan balance. Your lender keeps a running tally of that surplus, and 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 otherwise would be, you have paid less interest, and you can ask your lender for up to $4,800 back.
Redraw is a standard feature on most variable rate home loans. It is far less common on fixed rate loans, which often limit extra repayments or block redraw altogether.
How does a redraw facility work?
The process has three simple steps:
- You pay extra. You increase your regular repayment or make a one-off lump sum payment — a tax refund, a work bonus, or money from selling something.
- Your balance drops. The extra money is applied directly to your loan balance. Home loan interest is calculated daily on the outstanding balance, so every extra dollar means less interest charged.
- You redraw when you need it. You ask your lender to transfer some or all of the available redraw into your transaction account. Your loan balance goes back up by that amount, and interest is charged on the higher balance from then on.
Here is a simple example. Your repayments are $3,000 a month and you pay an extra $500 a month for 12 months. You now have $6,000 in available redraw. Leave it alone and it keeps saving you interest. Withdraw it for a new roof and your balance rises by $6,000 again.
One thing to keep in mind: you can generally only redraw money you have paid ahead of your scheduled loan balance. If you are behind on repayments, there is usually nothing available to redraw.
How much can a redraw facility save you?
The savings can be large, because interest is charged on a smaller balance for as long as the extra money stays in the loan.
Take a $600,000 home loan over 25 years at 6.50%. The minimum repayment is about $4,051 a month, and the total interest over the life of the loan comes to roughly $615,000.
Now pay an extra $500 a month — $4,551 instead of $4,051. The loan is paid off in about 19 years instead of 25, and total interest falls to roughly $455,000. That is a saving of around $160,000 in interest, and the loan is gone about five and a half years sooner.
Even a one-off lump sum helps. An extra $10,000 sitting in your redraw for a year at 6.50% saves roughly $650 in interest, because that $10,000 is not being charged interest for those 12 months.
The exact figures depend on your rate, your loan term, and whether you leave the money in place. The point is the same either way: extra repayments work hardest when you leave them alone.
How do you access your redraw money?
Most lenders let you redraw through their mobile app or online banking, by phone, or at a branch. The money is usually transferred into your transaction account, and from there you can spend it like any other money.
How fast it arrives depends on your lender. Some offer same-day online redraws. Others take a day or two to process the request. ANZ, for example, says approved online redraw requests generally arrive the same business day, while phone requests can take up to two business days.
There are often limits, too. NAB sets a $500 minimum redraw and a $150,000 maximum per transaction for eligible redraws. CommBank charges no fee and sets no minimum for eligible online redraws, but has a $1,000 minimum at a branch. Westpac offers redraw on most of its variable rate loans, with a $100,000 daily limit online. Check your own lender’s rules before you count on the money — the limits vary a lot.
Some lenders charge a fee per redraw, though most major lenders now offer it free on standard variable rate loans. A few still charge if you redraw more than a certain number of times in a month.
Redraw facility vs offset account
Redraw and offset both save you interest, but they work in different ways. An offset account is a separate transaction account linked to your home loan. The money in it is still yours, you can spend it any time with a debit card, and it reduces the balance interest is charged on.
| Feature | Redraw facility | Offset account |
|---|---|---|
| Where the money sits | Inside your home loan | A separate transaction account |
| Whose money is it | Extra loan repayments | Your own savings |
| Access to funds | Subject to lender rules and processing times | Instant, like a regular bank account |
| Interest earned | No | No |
| Fees | Often free, but fees may apply | May come with a package fee |
| Deposit guarantee | No — it is not a deposit | Yes, up to $250,000 per bank |
| Flexibility | Limited | High |
For an owner-occupied loan, redraw and offset save roughly the same amount of interest — the same dollars stop being charged interest either way. The real difference is access. If you want your money available at a moment’s notice, an offset account is the better tool. If you are happy to leave extra money in the loan and only dip in occasionally, redraw does the job, usually for free.
For a detailed side-by-side, read our offset account vs redraw facility comparison.
What are the downsides of a redraw facility?
Redraw has real drawbacks, and they catch people out.
Access is not guaranteed. The money is part of your loan, not sitting in a separate account. Your lender can set minimum and maximum redraw amounts, limit how often you redraw, or delay access. In rare cases a lender can reduce or freeze available redraw. In 2020, ME Bank reduced some customers’ redraw balances after recalculating minimum repayments when rates fell — it was within its rights under the loan terms, but borrowers who had counted on that money were caught out.
It can cost you interest savings. Every dollar you redraw goes back onto your loan balance, and interest is charged on the higher balance from that day. Redrawing regularly for everyday spending wipes out the benefit.
There is a tax trap for investors. The tax office treats a redraw as a new borrowing, and whether the interest is deductible depends on what the redrawn money is used for. If you redraw from an investment property loan to pay for a holiday or a personal car, the interest on that redrawn amount may no longer be tax deductible. For investment loans, an offset account is usually the safer choice, because the money never enters the loan. For an owner-occupied loan there is generally no tax issue, since the interest is not deductible either way. If you are unsure, talk to your tax adviser before redrawing from an investment loan.
The money disappears when the loan ends. Once your home loan is fully paid off, your redraw disappears. Any money sitting in redraw is absorbed into paying off the loan — you cannot withdraw it as cash at the end.
Can you redraw on a fixed rate loan?
Usually not, or only in a limited way. Most fixed rate loans restrict extra repayments — often to around $10,000 a year — so there is little surplus to redraw in the first place. Some fixed rate loans block redraw entirely during the fixed period. ANZ, for example, excludes redraw while a loan is on a fixed rate.
If flexible access to your extra repayments matters to you, a variable rate loan with redraw — or an offset account — is generally a better fit than a fixed rate loan. Our fixed vs variable home loan guide explains the trade-offs in detail.
Is a redraw facility worth it?
For most borrowers with a variable rate loan, yes — especially if it comes free with the loan. It costs nothing to have, it rewards you for paying extra, and it gives you a safety net for unexpected expenses without taking out a separate loan at a higher rate.
It works best when you treat it as a one-way street most of the time: pay extra when you can, leave it alone, and only redraw for something that genuinely matters. Used that way, it can shave years off your mortgage. Our guide on how to pay off your mortgage faster has more ways to put the same idea to work.
Just do not treat redraw as an emergency fund. It is slower to access than a savings account, your lender controls the rules, and the money is gone for good once the loan is paid off. Keep a real emergency fund in a separate account, and let redraw be the bonus — not the plan.
Frequently asked questions
Does a redraw facility reduce my loan term?
Yes, if you leave the extra money in place. Extra repayments lower your balance, so more of each repayment goes to principal and the loan finishes sooner. Redrawing the money reverses that effect.
Can I use redraw to pay my mortgage?
Yes. You can redraw the funds and use them to make your regular repayments, or some lenders will automatically cover repayments from your redraw balance if you are ahead on your loan. It helps short-term cash flow, but it does not reduce your debt — you are spending money you already paid in advance.
Is a redraw facility the same as an offset account?
No. A redraw facility holds extra repayments inside your loan, while an offset account is a separate transaction account linked to your loan. Both reduce the interest you pay, but an offset gives you instant access to your money and keeps it separate from the loan.
What happens to my redraw when I pay off my loan?
It disappears. Any money left in redraw is absorbed into the final loan balance — you cannot withdraw it as cash once the loan is closed. If you have a large redraw balance near the end of your loan, talk to your lender before the final repayment.
The bottom line
A redraw facility is a simple, useful home loan feature: pay extra, save interest, and take the money back if you need it. Just remember the three rules that matter. It is not a savings account, your lender controls access, and redrawing puts the interest back on. Use it to build a buffer and pay your loan off sooner — not as a spare wallet — and it can save you thousands over the life of your mortgage.
