Redraw Facility

What is a redraw facility? 

A redraw facility is a feature of some home loan accounts that allows you to make additional payments. You can then withdraw that extra money and use it down the track — if you like.  

The additional payments count towards your loan balance, so having more funds sitting in redraw means you’re paying less interest on your Home Loan. But crucially, you can still access the money if you need it. 

Unlike an offset account, which functions like a normal debit account, a redraw facility doesn’t have quite so much flexibility. It’s more suited for the occasional lump sum withdrawal than for buying your morning coffee. 

Which home loans come with a redraw facility? 

Lenders typically offer redraw facilities on a range of variable-rate home loans, though a few lenders also offer it for fixed-rate home loans.  

If you have a fixed-rate home loan without a redraw facility and you’d like to adjust it to better suit your current needs and circumstances, you can look into refinancing and its associated costs. 

How do I use a redraw facility? 

Using a redraw facility is pretty simple. The key is making additional payments, which just means putting money towards your Home Loan above and beyond your minimum required payments.  

Your interest is calculated on your loan balance, so by paying more, you’re reducing the balance and – hey presto! – also reducing the amount of interest you pay.  

Once you’ve made additional payments, you can withdraw that money when you need it.  

Keep in mind that you can only ‘redraw’ extra repayments; you can’t dip into the minimum required payments or the down payment using this facility.  

Some lenders also have eligibility requirements for accessing a redraw facility, such as being at least one scheduled repayment ahead on your home loan. 

Scenario 1

Regular additional repayments

Amos is paying off their $350,000 home loan, which has a redraw facility. Their minimum monthly repayment is $1,800 per month, but they set up monthly transfers for $2,000 a month. Six months later, their car is in desperate need of new tyres. Luckily, they have $1,200 sitting in their redraw facility. They decide to take out $600 from this cash stash to get some fresh tyres. 

Scenario 2

A once-off additional repayment

Luca gets an unexpectedly large bonus at work. He’s planning a trip later in the year and wants to put aside $3,000 towards it. Instead of putting the extra money into a savings account, he puts it into his home loan to reduce his interest repayments. Luca withdraws the $3,000 when the European summer comes and it’s time to bask in the Tuscan sun.

Why might I want to use a redraw facility? 

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

• to reduce the interest they need to pay throughout the loan’s lifetime while setting aside money for a future expense
• to have access to extra cash in case of an emergency, like urgent house renovations or an unplanned wisdom tooth extraction
• to have more flexibility when it comes to managing their cash flow and finances 

What are the pros and cons of a redraw facility? 

A redraw facility can be handy, especially if you find yourself in a financial pinch. But it can easily become a double-edged sword if it piles up extra debt down the road. Here are the upsides and downsides to keep an eye out for. 

Pros 

Reduced interest repayments

Any amount of money that’s in your redraw account means you’re bringing down the interest payments over the duration of your loan.

Flexibility

While you can make extra repayments to get ahead of your repayment schedule, you can also access those extra funds for emergencies or investment opportunities.

Peace of mind

If you’re nailing your repayments like a champ, 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. You’ll only be able to redraw repayments you’ve made ahead of schedule. This can be a good incentive (or extra nudge) to better manage your finances and pay off your Home Loan sooner.

Repayment holiday

Depending on your lender, you might 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!

Cons 

Additional fees

Some providers might charge extra fees or set limits on redraw facilities. Depending on your situation, these costs and limits might not be worth it for you.

Long-term costs

If you struggle to manage your finances, redraw facilities might not be the best match for you. If you make too many withdrawals, you might find that the ease of access that comes with a redraw facility cancels out your savings in the long run.

Helpful tip:

Consider treating a redraw facility as a financial safety net rather than a readily available source of funds for non-essential expenses. By maintaining discipline and only redrawing funds for investments or emergencies, you can optimise the benefits of this feature and come out on top financially.

Debbie Shankar

Group Content Manager, Lendi

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

Redraw facilities and offset accounts are similar. The main difference is how you can use them. 

A redraw facility is a feature attached to your home loan (it’s not a separate account) that allows you to top up your minimum monthly repayments. However, it typically has minimum amounts you can withdraw at a time. Plus, most lenders only allow you to access funds outside your minimum required repayment amounts. 

Offset accounts allow you easy, everyday access to your money. You can use them like debit cards for purchases, withdrawals, or fund transfers. 

Because some lenders apply extra charges or limits on the number of times you can redraw, a redraw facility would work better for occasional lump sums that you don’t plan to access regularly. 

When is a redraw facility better than an offset account? 

When deciding which feature is better for you, your financial circumstances are a good place to start.  

If you’re on top of your finances, able to easily make the minimum monthly repayments, and willing to send your windfalls straight across to your home loan without having to access them too often, then a redraw facility might make more sense than an offset account. 

If you’re looking for easy access to cash for daily use, or if you might want to access extra funds for occasional indulgences, an offset account might be more suitable. 

That said, you can also choose a home loan with both offset and redraw. Homeowners like Amos make extra repayments into their home loan’s redraw facility while using an offset account to receive their monthly pay. 

Is the money I redraw eligible for tax deductions? 

As a general rule of thumb, something becomes tax deductible if it’s an income-generating expense. So if you redraw money from your loan and use it for something personal, it’s not tax deductible. 

On the other hand, if you redraw money from your loan and use it for investment purposes, then the interest that you pay on that money might be tax deductible. 

If you redraw $5,000 and spend $2,500 on medical expenses and invest the other $2,500, then only half of the interest paid could be tax deductible — the interest you pay on the $2,500 that you used for investment. 

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

Making your home loan work harder for you might be as easy as finding one with a redraw facility. iSelect has teamed up with Lendi to give you options for home loans with redraw facilities and help you compare from a range of lenders online.

Written by

Liv Steigrad

Writer

Liv Steigrad is a brand strategist and copywriter with almost a decade of experience working with words. She believes that any topic is fascinating if you look closely enough, and enjoys doing her part in making information more accessible to anyone who comes looking.

Edited by

Ellie Garran

Digital Editor

As Digital Editor, Ellie is passionate about making our web content clear and simple to save iSelect customers time and effort. They also love knitting and sewing, especially with recycled materials, so you’ll probably find them in the iSelect office wearing a dress made out of a sheet.

Reviewed by

Debbie Shankar

Group Content Manager, Lendi

Debbie Shankar is Group Content Manager at Lendi, the leading branded distributor of home loans in the market, including the Lendi, Aussie and Domain Home Loans brands.