A redraw facility means you can make extra repayments on your home loan to reduce your interest payable and be able to redraw the funds for expenditures like renovations.

You might choose to make your regular repayments higher than the minimum or make one-off additional payments from time to time. By just putting in a little extra, you could pay off your home loan sooner by reducing the interest charged over the life of the loan. Use our extra repayment calculator here to see how an extra contribution could potentially affect how quickly you pay it off and how much interest you could save.

However, life can sometimes throw a curveball (and quite an expensive one at that). Maybe your car reaches the end of its lifespan quicker than expected, or maybe an unexpected debt comes along. Whatever it may be, this is where a redraw facility could be helpful.

If you’ve been paying extra into your home loan, a redraw facility lets you ‘redraw’ them, taking those extra repayments back to use as you wish.

Here are the answers to our 10 most frequently asked questions around the redraw facility:

What is a redraw facility?

If you choose to make additional repayments on your home loan, this sum sits on top of the balance and is your redraw account balance. You are ahead of your scheduled repayments when you have ‘available redraw’ and this balance is what you can access. However, you can then also choose to make reduced repayments, and your available redraw will fall over time.

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

Both reduce the interest payable on your home loan and may help you pay it off sooner.
However, an offset account sits separately from your home loan balance. It is a transactional bank account like your everyday bank account.
This means you can have your salary paid into it, whereas you need to purposefully make extra repayments into your redraw facility.
Whether either or both are available on your home loan depends on your bank and lender.

Is it better to have money in my offset or redraw?

There is no easy answer to this question. It really depends.

You might choose an offset account because:

•       you can access your money more easily and regularly
•       you don’t earn interest on your offset account and therefore do not pay tax

You might choose a redraw facility because:

•       you want to be ‘forced’ to save and so prefer that a redraw facility is less flexible
•       it is not counted as a liquid asset, whereas an offset account is

What’s the difference between a redraw facility and a normal savings account?

A normal savings account doesn’t directly impact your mortgage. Like an offset account, it sits separately from your home loan balance, while a redraw facility sits on top of it.

Your savings account earns interest (and so tax is payable). Your redraw facility reduces the interest payable on your home loan.

How easy is it to redraw, and how much can I take out?

Different banks and lenders have different fees, minimum and maximum redraw amounts and circumstances when a redraw is not allowed. It’s vital to check your policy for exact terms and conditions.
However, generally speaking, redrawing can be easily done via mobile and online banking or at a branch.

How will redrawing affect my home loan?

It will increase your home loan balance and, thereby, possibly your interest payable and minimum repayment amounts.

Will redrawing affect my credit score?

No, redrawing does not have any effect on your credit score.

What happens to my redraw facility when I refinance?

It is transferred to your new home loan. You’ll still have access to the funds but the interest you pay will depend on the new balance.

Can I redraw to buy an investment property?

Yes, you can. However before you do so, we recommend speaking to a Green Associates Financial Advisor and Planner to ensure you understand the different tax implications for your redraw facility (and offset account).

Can I use my offset and redraw together?

Yes. Using both can help lower your interest payable and pay off your mortgage earlier. The most optimal strategy depends on your personal circumstances and money habits. Speak to a Green Associates Financial Advisor and Planner for advice tailored to you and your goals.

Want to know more?

Our Financial Advice and Planning service can help you understand and make the most of your redraw facility and become mortgage-free earlier.

Speak to our friendly team for a tailored consultation on 1300 815 921 or at info@greenassociates.com.au

At Green Associates, all of our advisers are fully licensed and listed on the ASIC Moneysmart Financial Adviser Register. Green Associates is committed to providing the best solutions for you and your wealth-creation journey.