What is a home loan redraw facility?
Let's cut to the chase: a redraw facility is one of the most underrated features of modern home loans—yet it could be your financial secret weapon.
Simply put, a redraw facility lets you access any extra repayments you've made on your home loan. Make more than your minimum repayments? That surplus builds up and stays accessible when you need it.
Think of it as your future self thanking your past self for being financially savvy.
How a redraw facility actually works
Here's the deal: when you make payments above your required minimum on an eligible home loan, that extra money:
- Reduces your loan principal immediately
- Lowers the interest you're paying (since interest is calculated on your remaining balance)
- Remains available for you to "redraw" or take back out when needed
This creates a win-win situation where your extra funds are working harder than they would in a standard savings account, while still remaining accessible in case of emergency or opportunity.
Key benefits of using a redraw facility
1. Save on interest while keeping cash accessible
The most significant advantage is that your extra money reduces your loan balance—meaning less interest accrues—while still being available if you need it. This dual-purpose approach beats traditional savings accounts where your money often earns minimal interest while inflation chips away at its value.
2. Built-in financial discipline
When your surplus funds live in your mortgage rather than your everyday account, you're less likely to spend them impulsively. The slight barrier to access (needing to actively redraw the funds) creates just enough friction to encourage thoughtful spending.
3. No need for additional loans
Need funds for renovations, a new car, or an unexpected expense? Rather than applying for a personal loan or using a high-interest credit card, you can access your redraw facility—potentially saving thousands in interest and application fees.
4. Flexibility during financial changes
Building up your redraw can provide a financial buffer during major life transitions. Whether you're:
- Taking parental leave
- Changing careers
- Going back to study
- Dealing with temporary income reduction
Your surplus can help you take a "repayment holiday" (with your lender's approval) or reduce financial stress during these periods.
Redraw vs. offset: what's the difference?
This is where many homeowners get confused, so let's clear up the differences between an offset and a redraw facility:
Redraw Facility:
- Extra money goes directly into your loan account
- Reduces your loan principal immediately
- May have access limitations or minimum withdrawal amounts
- Usually has no additional fees on basic home loan packages
- Typically accessed through your banking app or online banking
Offset Account:
- Separate transaction account linked to your home loan
- Balance is "offset" against your loan when calculating interest
- Offers immediate access like a regular transaction account
- May come with additional account fees
- Can use card payments, transfers, and withdrawals as normal
In practical terms: an offset account works like your everyday bank account but saves you mortgage interest, while a redraw facility requires you to actively withdraw funds when needed.
Who should use a redraw facility?
Redraw facilities work particularly well for:
- Disciplined savers who want to pay down their mortgage faster but maintain emergency access to funds
- Homeowners with variable income (self-employed, freelancers, commission-based workers) who can make larger payments in good months
- Property investors looking to balance loan reduction with liquidity for future investments
- First-time buyers wanting to reduce interest costs while building financial security
Important considerations before redrawing
1. Minimum withdrawal amounts
Most lenders set minimum redraw amounts—typically around $500—so it's not ideal for small, frequent withdrawals.
2. Access restrictions
Some loans require paperwork for redraw, especially if your loan requires multiple signatures. Check with your lender about their specific process.
3. Fixed rate limitations
Most fixed-rate home loans don't allow redraw during the fixed period. You'll usually need to wait until your loan reverts to a variable rate.
4. Effect on loan term
Significant redraws can impact your loan term or repayment amounts. Your lender may recalculate your minimum repayments to ensure you still pay off the loan within the original timeframe.
5. Tax implications
If you use your home loan for investment purposes, redraws can potentially affect the tax deductibility of your interest. Always consult a tax professional before making significant redraws.
How to build and use your redraw effectively
Building your redraw balance
The most effective strategies include:
- Rounding up payments: If your minimum repayment is $1,842, pay $2,000 instead
- Making lump-sum contributions: Use tax returns, bonuses, or inheritance to make significant extra payments
- Increasing payment frequency: Consider fortnightly instead of monthly payments to make an extra payment each year
Smart ways to use your redraw
While you can redraw for any purpose, the most financially savvy uses include:
- Home improvements that increase your property value
- Emergency expenses instead of using high-interest credit
- Education or career development that increases your earning potential
- Investment opportunities with expected returns higher than your mortgage interest rate
Real-world example: how redraw saves money
Let's make this concrete with an example:
Jason has a $500,000 mortgage with a 30-year term and a 5.5% interest rate. His minimum monthly repayment is $2,839.
By paying an extra $500 monthly for five years, Jason:
- Builds a redraw balance of $30,000
- Reduces his loan term by over 5 years
- Saves approximately $83,000 in interest over the life of the loan
If Jason needs $20,000 for renovations, he can redraw this amount without applying for a separate loan—saving application fees and avoiding higher interest rates typically charged on personal loans.
How to access your redraw facility
Most lenders offer multiple ways to access your redraw:
- Mobile banking app: The quickest method for most borrowers
- Online banking: Available 24/7 for scheduled or immediate transfers
- Phone banking: For lenders with this service
- In-branch: For larger amounts or loans requiring multiple signatures
- Redraw form: Some lenders require a formal redraw application for certain loan types
Remember that funds are typically transferred to your nominated bank account, which may take 1-2 business days depending on your lender.
Common questions about redraw facilities
Can I redraw any amount?
Most lenders set both minimum (typically $500) and maximum limits per transaction. Some also require you to maintain at least one month's worth of repayments in advance.
Will redrawing affect my loan term?
Significant redraws may extend your loan term or increase your repayments. Your lender will typically recalculate your minimum repayments to ensure you still pay off the loan within the original timeframe.
Can I redraw on a fixed-rate loan?
Generally, no. Redraw facilities typically aren't available during fixed-rate periods. You'll need to wait until your loan reverts to a variable rate.
Are there fees for redrawing?
Many lenders offer fee-free redraws through online banking or their app, but may charge for in-branch or phone banking redraws. Check your loan's fee structure.
Can redraw be suspended or canceled?
Yes. Lenders can suspend redraw access if you fall behind on repayments or violate loan terms. Some loans also require the lender's approval for each redraw transaction.
Making redraw work for you
A redraw facility is one of the most powerful yet underutilised features of modern home loans. When used strategically, it offers the perfect balance between reducing your mortgage faster and maintaining financial flexibility.
The key is understanding exactly how your specific lender's redraw facility works—minimum amounts, access methods, and any restrictions that might apply to your loan type.
Ready to explore how a redraw facility could optimise your home loan? Talk to our mortgage experts today about finding a loan with a flexible, accessible redraw facility that matches your financial goals.
