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Redraw vs Offset: Can You Get Your Extra Repayments Back?

6 min read · by Ugur, demir.loans

Paying extra off your home loan is one of the simplest ways to save interest. Many people also treat those extra repayments as a safety net they can dip into later. Whether that's true depends on your loan. Most variable loans include redraw as standard. Fixed rate loans are where it gets limited. It's worth knowing which one you have before you need the money.

What redraw actually is

When you pay more than your minimum repayment, the extra reduces your loan balance and the interest charged on it. A redraw facility lets you take those extra repayments back out later if you need them. The amount available to redraw is the difference between where your balance is and where it would have been on minimum repayments. It isn't a savings account. The money has gone into the loan, and redraw is the lender agreeing to lend it back to you.

Where redraw gets limited

Most variable home loans include redraw as standard, so if you're on one, the facility is probably there. Fixed rate loans are the main exception. Many lenders cap extra repayments during the fixed term and limit or block redraw until it ends, though policies vary. Even where redraw is available, the details differ: whether there's a minimum amount, how you access it, how long it takes and whether any fees apply. Your loan documents or banking app will tell you what yours allows.

Redraw can be limited later

Because redraw is a feature of the loan, not your own money, the lender's terms usually allow it to be restricted. That can happen if you fall behind on repayments or the loan goes into hardship, which is often exactly when you'd want access to that buffer. It doesn't happen often, but it's a real difference from money sitting in an account in your own name, and it's worth factoring in if your extra repayments are your emergency fund.

How an offset account compares

An offset account is a transaction account linked to your loan. The balance in it reduces the interest charged, much like an extra repayment, but the money stays in your account and you can spend it like normal savings. For interest, the two work out much the same. The differences are access, flexibility and tax. Offset funds aren't part of the loan, so they're generally easier to get at, and they stay separate if you later rent the property out. Offset accounts sometimes come with a package fee, and they're usually only available on variable loans or the variable part of a split loan.

The investment property catch

If there's any chance your home becomes an investment property later, how you hold your savings matters. Money redrawn from a loan for personal use can change the purpose of that part of the debt, which can affect how much of the interest is tax deductible. Money held in an offset account doesn't have the same problem, because it was never paid into the loan. This is an area to get tax advice on before you decide, not after.

Check your loan before you rely on it

Does your loan have a redraw facility, and is it available now or only after a fixed term ends?
Are there fees or minimum amounts each time you redraw?
How do you access it, and how long does it take for the money to arrive?
Is there a cap on extra repayments, especially on a fixed portion?
Would an offset account suit you better, and what would it cost?
Could the property become an investment later, and have you had tax advice on how to hold your savings?

Questions, answered

Do extra repayments still help if I can't redraw them?

Yes. Extra repayments reduce your balance and the interest you pay whether or not you can redraw them. Redraw is about whether you can get the money back out, not whether it saves you interest.

What happens to my redraw if I refinance?

Your extra repayments have already reduced the balance, so you'll be paying out a smaller loan. The redraw itself doesn't carry over to the new lender. If you want access to that money after refinancing, you'd need to draw it out first or borrow it as part of the new loan, which needs to be planned with the lender.

Is an offset account always better than redraw?

Not always. If you're disciplined and only need occasional access, redraw on a no-frills loan can be cheaper than paying for an offset package. If you want easy access, plan to hold large savings or might rent the property out later, an offset is often the better fit.

Can I add redraw or an offset to my existing loan?

Sometimes, by switching to a different product with the same lender. It can involve fees, and on a fixed loan it may trigger a break cost. Comparing that against refinancing to a loan that already has the features you want is usually worth doing.

Talk it through

General information only, so the next step is applying it to your numbers. Book a chat, email ugur@demir.loans or call 0495 000 228. Free, no obligation.

This article is general information only and doesn't take your objectives, financial situation or needs into account. Scheme rules, thresholds and fees change; check current figures before relying on them. No interest rates are quoted on this website.