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Why redraw doesn't work on an investment loan
Bayley Clarke · Mortgage broker on the road · Reviewed 24 August 2026 · 4 min read
The short answer
When you have redraw, you’re actually paying down the loan itself. When you go to pull it back out, you’re changing the purpose of what that debt was originally for.
Say you’ve got a $500,000 investment loan and you put $25,000 on top of it. What you’ve done is paid your investment loan down by $25,000. If you later take that $25,000 back out and buy yourself a car, your original $500,000 investment loan becomes a $475,000 investment loan with a $25,000 car loan attached. That’s why an offset account makes more sense on an investment property: you’re not changing the purpose of the loan you set up to buy the place. So try and avoid redraw if you’ve got an investment loan. It’s not worth the risk.
The 90 second version. Everything below is the detail underneath it.
Redraw is a repayment. Offset is a parking spot.
The two features get sold as the same thing, and on an owner occupied loan the difference barely matters. On an investment loan it’s the whole story, so it’s worth being precise about what each one actually does.
Redraw sits inside the loan. When you pay extra, the loan balance drops. The bank lets you take that extra back later, but the money coming out is a fresh drawdown on the facility, and a fresh drawdown has whatever purpose you give it. The loan doesn’t remember that the dollars once came from your savings. It only sees a balance that went down and then went back up, and what the new borrowing was spent on.
An offset is a separate account linked to the loan. Your cash sits in it, the bank works out interest on the loan balance less the offset balance, and the loan itself never moves. Take the money out and you’re spending your own savings. The loan is still the same loan, for the same purpose, at the same balance it was the day before.
Same monthly interest saving either way while the money sits there. The difference is what happens the day you take it out.
The $25,000 car, both ways
Here’s the example from the video laid out side by side. A $500,000 investment loan, $25,000 of spare cash, and a car bought a year later.
| Step | Extra paid into the loan, then redrawn | Cash parked in an offset |
|---|---|---|
| Day one: investment loan | $500,000, all of it borrowed to buy the property | $500,000, all of it borrowed to buy the property |
| $25,000 of spare cash arrives | Paid into the loan. Balance now $475,000 | Deposited to the offset. Loan still $500,000, interest charged on $475,000 |
| A year later, $25,000 spent on a car | Redrawn. Balance back to $500,000, but $25,000 of it was borrowed to buy a car | Withdrawn from the offset. Loan still $500,000, interest now charged on the full $500,000 |
| What the loan is now | $475,000 for the property, $25,000 for a car, in one facility | $500,000 for the property, exactly as it started |
Illustrative numbers, not a quote. The balances land in the same place and the interest bill is the same. What differs is the character of the debt: one loan is still entirely a property loan, the other is now two purposes sharing one account. That split follows the money, not the account name, and it doesn’t undo itself when you make the next repayment.
Why the purpose of the loan matters
A loan is described by what it was borrowed for, not by what the property is. Borrow to buy an investment property and the loan is an investment loan. Borrow against the same facility to buy a car, and that slice is a personal borrowing, even though it sits on the same statement under the same account number and the same rate.
The reason Bayley structures investment loans with an offset rather than redraw is that the purpose of each dollar of debt is what people and their accountants look at when they work out how the interest on it is treated. Once a loan has two purposes inside it, that question gets harder, and the answer isn’t something a broker gives you. How the interest on any part of your loan is treated for tax is your accountant’s call, and it depends on your own circumstances. What a broker can do is set the loan up so the question never has to be asked.
Four things that catch people out
- Extra repayments count even when you didn’t mean them. Rounding a direct debit up, paying fortnightly at more than the minimum, or having salary land in the loan account all pay it down. If the loan has redraw, every one of those is money you might later pull out, and the same purpose question follows it.
- What you spend the redraw on is the question, and it’s one for your accountant first. The purpose of the new borrowing follows the use of the money. Ask before you press the button, not after, because the transaction is easy to make and hard to unpick.
- Not every investment loan comes with an offset. Basic products often have redraw only, and fixed rate loans frequently limit or exclude offset altogether. If an offset is the point, it has to be part of the product choice on day one, not a request after settlement.
- Once mixed, it stays mixed. If a redraw has already gone out for a personal purpose, the loan doesn’t sort itself out. Separating the two purposes usually means splitting the loan, and sometimes a refinance to do it cleanly. Possible, but it’s paperwork you could have skipped.
What to bring, and what to ask
Your investment loan statement shows whether the product has an offset, how much extra you’ve paid in, and whether anything has already been redrawn. From that I can tell you whether the money can sit somewhere cleaner, whether a split or a product switch is worth doing, and what to ask your accountant before you move a dollar.
This page describes how redraw and offset facilities generally work as at August 2026. Individual lenders aren’t named on purpose: product features move, and the right structure depends entirely on your situation rather than on a list in an article. How the interest on any part of a loan is treated for tax depends on your circumstances and is a question for your accountant. This is general information about how the loan products work, not tax advice.
Got spare cash sitting in an investment loan?
Send me your loan statement and I’ll tell you whether your loan has an offset, whether the extra you’ve paid in can be restructured cleanly, and exactly what to put to your accountant before you touch it. Takes maybe ten minutes and it costs you nothing.
No application, no credit check, nothing on your file. Just the numbers.
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