GUIDES & RESOURCES

Redraw facility

A redraw facility is a common feature of home loan products, and although it can be useful, it may also come with its own fees.

iSelect is the trading name of iSelect Mortgages Pty Ltd (ABN 86 148 217 181). iSelect Mortgages Pty Ltd is a credit representative (Credit Representative 400540) of Auscred Services Pty Ltd (Australian Credit Licence 442372). iSelect provides a referral to Lendi Pty Ltd ACN 611 161 856 (Lendi) who provides credit assistance. Lendi is a credit representative of Auscred Services Pty Ltd (ACN 164 638 171) (Licensee). iSelect Mortgages Pty Ltd receives a commission from the Licensee for each new customer account created and for each home loan submitted through this service.

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If you’re the sort of person who needs their cash flow to, well, flow, then you might like to consider getting a home loan with a redraw facility.

What is a redraw facility?

A redraw facility is the ability for you to access the money you’ve already put towards paying off a home loan. A typical example would be a situation where you may have submitted extra repayments ahead of your repayment schedule, but may need to access some extra cash flow. In other words, you can access only the sum of additional funds you paid above and beyond the regular payment schedule. It’s not offered across all loan types, but it can be a feature that many borrowers look for in a loan.

What could I use a redraw facility for?

Here are some of the common reasons borrowers look for home loans with a redraw facility:

  • Having additional funds sitting in redraw means that you’re simultaneously paying off your home loan as well as being able to access those additional funds if you need them.
  • Making extra repayments to pay off your home loan sooner to reduce the interest you need to pay over the life of the loan.
  • Making ends meet if it comes down to incurring expenses that come out of the blue, such as urgent car repairs or medical bills.
  • Having more flexibility when it comes to managing cash flow and finances.

What are some of the pros of a redraw facility?

  • Reduced interest repayments: Any amount of money that’s in your redraw account means that you’re reducing the amount of interest you’d need to pay over the life of your loan.
  • Flexibility: While you can make extra repayments to get ahead of your repayment schedule, you can also access those same extra funds you made in case of emergencies or other opportunities.
  • Peace of mind: If you manage your repayments really well, then you can continually reduce your loan amount and still have access to money if you need it.
  • Better control over your finances: Generally speaking, redraw facilities don’t allow you to redraw minimum repayment amounts, so you’ll only be able to redraw repayments you’ve made ahead of schedule. This can be a good incentive for many people to better manage their finances and sooner pay off their home loan.
  • Repayment holiday: Depending on your lender, you may be able to take a break from your scheduled repayments by using the additional payments you’ve made for a period of three to 12 months. This means you can use the funds that would have gone towards paying off your loan for something else you really need!

What are some of the cons of a redraw facility?

  • Additional fees: Some providers may charge extra fees or set limits on redraw facilities. Depending on your situation, these costs and limits may not be worth it for you.
  • Long term costs: If you’re the sort of person who struggles to manage their finances, then a redraw facility may not be the best feature for you. Many people find that the ease of access that comes with a redraw facility cancels out their savings in the long run, due to making too many withdrawals.

What’s the difference between a redraw facility and an offset account?

There are some key differences between redraw facilities and offset accounts. Some features may suit you better than others, depending on your needs.

  • A redraw facility allows you delayed access to any additional payments you’ve made towards paying off your home loan, whereas an offset account allows you easy, everyday access to your money.

    If you’re easily tempted to spend money, then a redraw facility may give you the added incentive to keep saving and paying off your loan.

  • Both redraw facilities and offset accounts can help you reduce the amount of interest you pay on your loan.

    With redraw, the additional repayments you make can shorten the lifetime of your loan, and therefore, also the interest.

    Whereas in an offset account, any money you deposit is deducted from your loan principal when your lender is calculating interest, which can also help reduce interest.

  • Redraw facilities and offset accounts are typically features of home loans with variable interest rates, but some lenders offer offset accounts on selected fixed-rate home loans.

Which home loan products come with a redraw facility?

Lenders typically offer redraw facilities on a range of variable rate home loans, as opposed to fixed rate home loans.

So, if you’ve been considering applying for a home loan with a fixed interest rate, then a redraw facility may not be an available feature depending on the lender.

How can I switch to a product with a redraw facility?

If you’re on a fixed rate home loan, or even a home loan without a redraw facility, you may be considering other options that do offer a redraw facility. Maybe you’re even thinking about refinancing!

The good news is that we’ve partnered with Lendi to make that process simpler and easier for you.*

Where can I compare options for home loans with redraw facilities?

At iSelect we’ve partnered with Lendi to make it easier to find a great deal on your home loan. Click here to get started comparing from a range of lenders online, or give Lendi a call on 1300 186 260.

Last updated: 29/22/2021

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