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What is a redraw facility?
A redraw facility lets you take back some extra home loan payments made above the amount due. While those extra payments stay in the loan, they cut your debt and interest. A redraw adds to the debt again. The lender's terms set how much you can take out and when.
Updated
How does redraw work?
Paying extra into a loan lowers the debt you owe. If the loan allows redraw, you may be able to borrow some of that money again. Making a payment that was already due does not mean you can then take it back.
The loan contract sets the redraw amount shown in your account. This is not cash kept in a separate savings account. The lender can set rules for when you take it out and how you do so.
Why might available redraw be less than my extra repayments?
The amount you can take back depends on your contract. A lender may set rules for access. It may keep some extra payments to cover debt due under the loan's payment plan. The online redraw figure can show more than a sum of past extra payments tells you.
You may face a fee or a limit each time you take money back. Extra payments may also be capped, in particular while the loan rate is fixed. The offset account page explains a different option. With an offset, savings stay beside the loan rather than paying down debt.
Why does the use of redrawn money matter for tax?
The ATO checks what you buy with a redraw. Money spent on private items leaves that part of the debt for private use. Interest on that part cannot be claimed for the rental, even when a rental home backs the loan.
If a loan pays for both rental and private costs, its interest and debt payments must be split between those uses. This split is called apportionment. The ATO does not let you choose to put all debt payments towards the private part first.
Illustrative example4 steps
Making and then accessing an extra repayment
- Debt before a lump-sum repayment: $270,000.
- An extra $18,000 payment brings that debt down to $252,000.
- A permitted $6,000 redraw for a private purchase increases it to $258,000.
- Of the remaining debt, $6,000 now relates to the new private purchase, rather than the original use of the loan.
For investors
A redraw can change the purpose of part of a loan.
A private redraw can leave some rental loan interest claimable and some that is not. This can also happen when a home you once lived in becomes a rental. Records must show what each borrowed sum paid for. They need to trace both the loan and money taken back out. Your accountant or registered tax agent can confirm the treatment of each part.
Common questions
Questions about redraw facility
Keep learning
Property is a complex world.
Redraw facility is one piece of it. Lending rules decide how much you can borrow, and how soon you can buy again. Next, read about offset account, equity and refinancing.
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