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Updated: Aug 4, 2021

A redraw facility lets you access extra repayments you have made on your home loan and helps reduce the interest payable. Different lenders have different ways to redraw and different rules on the frequency and the amounts permissible.

How does a redraw facility work?

When you pay more than the minimum monthly payment on your home loan the extra funds accumulate in your mortgage account over time which may then be available to withdraw at a later date. For example, if you minimum monthly payment is $800 and you pay an extra $200 per month for 12 months you have an extra $2400 that may be available for you to withdraw at a later date.

How to redraw money

Every lender is likely to have different options. Most will let you request redraw via online banking, by making a phone call, or by visiting a branch. Lenders may also have different minimum and maximum redraw amounts and may also charge a fee for each redraw you make.

Redraw facilities vs a savings account

Redraw facilities can be an effective place to keep your savings. But instead of earning interest as you would in a savings account, you are reducing the amount of interest you pay on your home loan. This may work out better in the long run.

Generally, the interest you will save by having your money in redraw will be more than you would earn from keeping the same amount in a savings account because home loan interest rates are normally higher than the interest rates offered by savings accounts.

Redraw vs offset accounts

Offset accounts and redraw facilities both have the potential to save you interest on your home loan but there are important differences.

An offset account works much like an everyday transaction account. You can withdraw money at ATMs and buy things using a debit card.

A redraw isn’t an account as such, but rather a facility attached to your home loan, so it doesn’t give you the flexibility to access money in the same way that an offset account can. For some people this can be a benefit as it may reduce the temptation to spend the money in the same way they would if it was available in an offset account.

Speak to your mortgage broker today about redraw facilities.

Kind Regards,

The Newstead Group Team

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