Basically redraw allows you access any additional repayments or lump sums that you have deposited into your home loan. It is a great idea to park any money that you can into your home loan as this reduces the interest charge and pays your home off faster. However there are times when you need to get some of this money back and this is called ‘redraw’. Some lenders still charge for this service although most now allow for free online redraw through your web browser access to your bank account.
Many years ago a redraw facility was considered a feature however today it is pretty well common on all variable interest rate home loans. NOTE: this is not the case for fixed interest rate home loans – only a few lenders allow redraw.
Paying a deposit on an investment property or buying shares are times when you should not use redraw to access funds ( unless your tax advisor specifically says otherwise). That is because the original home loan is not for investment and so using redrawn funds will not be considered as deductible borrowing.
The other, more sophisticated way of achieving the right outcome is an offset account.