Redraw facility

A redraw facility is a home loan feature that allows you to access extra repayments you’ve made on your mortgage. If you pay more than your required minimum repayments, you can withdraw those additional funds whenever you need them.

How does a redraw facility work?

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.

Advantages

Disadvantages

Interest savings: Extra repayments directly reduce your loan balance, lowering ongoing interest costs.
Disciplined savings: Funds are kept separate from your everyday spending account, helping to prevent impulse purchases.
Financial flexibility: Provides a safety net of funds you can access without taking out a personal loan or using a credit card.

Access limitations: Lenders may apply processing delays, minimum withdrawal thresholds (e.g., $100 per redraw), or daily limits.
Potential fees: While many online redraws are free, some lenders or basic loan products charge a fee per redraw transaction.
Tax considerations: Withdrawing redraw funds from an investment loan for personal use can alter the tax deductibility of your mortgage interest under ATO guidelines.

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.

Chat to your Loan Market broker to find out more and determine the right loan structure for your circumstances.

Not sure if you need an offset account or a redraw facility?

FAQs.

Is there a fee to redraw money from my home loan?

Most major Australian lenders offer free online redraws via internet banking. However, some basic home loan products or manual redraw requests may incur a nominal processing fee.

Does redrawing money increase my monthly repayments?

Generally, no. Your required minimum monthly repayment remains calculated based on your loan term and principal. However, taking money out of redraw increases your interest-bearing balance, meaning less of your regular payment goes toward paying down principal.

What happens to my redraw facility when I refinance?

When you refinance, your new lender pays off the net loan amount (your principal minus any available redraw balance). If you want to keep the additional capital in a redraw, you must instruct your mortgage broker before closing the account.

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