Redraw is a loan feature that lets a borrower withdraw, from a loan account, the additional principal repayments they have previously made above the contracted minimum. The funds sit in the loan rather than in a separate offset account, but they can be accessed by the borrower as redraws against the loan facility.
Redraw is most common on bank residential mortgages and selected commercial term loans, where the loan structure allows the borrower to repay ahead of schedule and then re-access those repayments later if needed. It functions as a built-in liquidity buffer: extra repayments save interest while still being accessible.
The mechanics differ from an offset account. Funds in a redraw facility have been applied to the principal of the loan (reducing interest); a redraw transaction effectively re-borrows them. An offset account holds the funds in a separate transaction account, where they offset the loan balance for interest calculation without ever being applied to principal. The tax and accounting treatment can differ between the two structures, particularly for investment properties.
Private credit facilities sometimes do not offer redraw; the typical short-dated structure does not call for the feature.