Home loan redraw facilities explained

A redraw facility is a home loan feature that allows you to access extra repayments you’ve made on your mortgage. If you’ve been paying more than your required minimum repayments, you may be able to withdraw those additional funds when needed.

Every extra dollar you pay into your loan reduces your outstanding balance, which in turn reduces the interest charged. For example, if you owe $500,000 on your mortgage and have $30,000 in redraw, you will be charged interest on only $470,000.

The redraw facility also lets you access these extra repayments if needed. For example:

Your minimum monthly repayment is $2,000, but you decide to pay $2,500 each month.

After 12 months, you will have made $6,000 in extra repayments ($500 x 12).

If your loan has a redraw facility, you can withdraw up to $6,000 when required.

Redraw vs offset account

Both redraw facilities and offset accounts reduce the ‘interest bearing’ portion of your loan, however they work differently:

• Redraw facility: Extra repayments sit within your loan, reducing your loan balance and interest costs. If you withdraw these funds later, you are essentially increasing your loan balance again, which may have tax implications if the property is an investment.

• Offset account: This is a separate transaction account linked to your loan. The money in this account offsets your loan balance, reducing the interest charged, but because it remains separate from your loan, withdrawals are treated as normal bank transactions rather than borrowing.

Another key difference is that redraw facilities may require approval or processing time, whereas offset accounts provide immediate access to funds.

Redraw pros

• Reduces your interest – Extra repayments reduce your loan balance, lowering interest costs.
• Encourages disciplined savings – Funds aren’t as easily accessible as an offset account, helping to prevent impulse spending.
• Promotes flexibility – If needed, you can access the extra repayments rather than taking out a personal loan or using credit cards.

Redraw cons

• Limited access to funds – Some lenders may impose restrictions, withdrawal limits or waiting periods.
• Less flexible than offset – If you need frequent access to your extra repayments, an offset account may be more suitable. There may also be minimum withdrawal amounts for a redraw.
• Potential fees – Some lenders may charge a fee to redraw.

What happens to the redraw when the loan is paid off?

Once your loan is fully repaid, any remaining redraw balance may no longer be accessible. Some lenders automatically apply redraw funds toward paying off the loan, while others may allow you to withdraw the remaining balance before closure.

It’s important to check your lender’s policies when deciding if a redraw is right for you.

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