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What is a home loan redraw and how does it work?

Person using a home loan redraw on their phone, with swirly sunnies.

Whether you’re searching for your first home loan or you're in the process of paying one off, there are an abundance of home loan features you’ve likely come across: everything from offset accounts and extra repayments to split loan facilities.

One of the most common features is home loan redraw, otherwise known as a redraw facility. But what exactly is a home loan redraw, how does it work, and what are the pros and cons?

What is a home loan redraw?

A home loan redraw, also known as a redrawing or a redraw facility, refers to the act of withdrawing extra repayments you’ve already made towards your home loan, to be used for another purpose.

Extra repayments are exactly what you think: additional payments made towards a home loan on top of the minimum repayments. Borrowers make extra repayments to pay off their loans faster and reduce the amount of interest they pay over time. You can see exactly how much of an impact they can make by taking our extra repayments calculator for a spin.

Redraw facilities are just there in case you need to dip back into those funds later on. 

How does a home loan redraw work?

A redraw facility is a special account attached to your home loan that you can make extra repayments into. These funds aren't under lock and key, however: the point of a redraw is you can use them again later if you need them.

Let's break down an example of how it works. 

How does a home loan redraw work? Extra repayments are stored in an account you can withdraw from later.

Home loan redraw scenario

Rose and Joey are paying off a $500,000 home loan and the minimum repayment they need to make is $2,000 a month. However, if they wanted to pay off their loan faster they could also make extra repayments on top of that $2,000 - say, an additional $100 a month.

Now, here’s where home loan redraw comes in. 

Over the years Rose and Joey have made $7,000 in extra repayments, but now they’re thinking about doing some renovations on their kitchen. Using the redraw facility which is attached to their home loan, they can actually dip into that $7,000 in extra repayments they’ve made and put it towards paying for renovations.

Of course, it’s not quite as simple as that. Not all lenders allow redraw, and in some instances you might have to activate the redraw facility before you can access your money - either through an online form or a form which you’ll need to submit in-person at a branch. But we’ll go through the pros and cons of redraws further below.

Is it better to have a redraw or an offset account for you home loan?

Home loan redraw facility wish list, including zero fees, no limits on extra repayments, and an online facility.

At this point you might be thinking that making extra repayments and using a redraw facility sounds pretty similar to the way an offset account functions.

It’s true that both give mortgage holders the ability to reduce the interest on their home loans, but there are also some notable differences:

  • Structure: At the most basic level, an offset account is a separate deposit account (like a bank account or savings account), whereas a redraw facility is more of an add-on to your home loan.
  • Flexibility: Because they are deposit accounts, offset accounts can offer more flexibility than a redraw facility. Mortgage holders can use one just like a normal bank or savings account to deposit and withdraw money, make transactions and even to have their salary paid into.
  • Speed: While customers are able to access and move money in and out of an offset account at the speed of a normal bank account, accessing money from a redraw facility can sometimes take a couple of business days.

Of course, there’s much more to offset accounts. So make sure you check out our offset account guide for a full explainer on how they work and why they’re a useful feature to have.

Pros of a home loan redraw

  • Just in case! Making extra repayments can be a simple way to pay off your loan faster and reduce the interest you pay, but having access to a redraw facility may provide that extra sense of freedom should you need that money down the track.
  • Flexible payments. You can grow your redraw balance through regular payments, but you can also make one-off payments (depending on any caps) - for example, an inheritance or work bonus.
  • Better than a personal loan? If you need to dip into your redraw balance to upgrade your car, using the money in your redraw facility could be more cost effective than taking out a personal loan.

Cons of a home loan redraw

  • T&Cs apply. There are often limits on the amount of extra repayments borrowers can make (e.g. $20,000 annually), as well as minimum or maximum amounts you’ll actually be able to redraw.
  • Watch out for fees. Many lenders don’t charge borrowers a fee to make a redraw, but there are certainly a number that do.
  • Variable rate only. The vast majority of variable home loans will feature a redraw facility, but it’s less common with fixed home loans.
  • Harder to access than an offset account. As mentioned, when comparing a redraw facility to an offset account it’s worth considering that money held in a redraw facility can be harder to access. Although this could be a positive for people who find it a bit too easy (and tempting) to spend the money in their offset account.

Tips and traps of home loan redraws

  • Tip 1: Your home loan interest rate is almost certainly going to be higher than any rate you’ll be able to get on a savings account or term deposit. So making extra repayments or stashing your savings in an offset account could be a savvier way to use your money.
  • Tip 2: Did you know that most lenders allow borrowers to access their redraw facility online or through a banking app? That way you manage your redraw needs without having to make a phone call or set foot in a branch.
  • Trap 1: It may sound obvious, but once you’ve withdrawn money from a redraw facility your home loan balance will increase. So it’s worth making sure that any redraw you make is put to good use and weighed up against the size of the repayments you’ll need to make going forward and the length of time it might add to paying off the loan. 
  • Trap 2: While rare, there have been a few notable cases where banks have made changes which have limited or reduced the functions of redraw facilities. While lenders should give their customers plenty of notice, it’s worth reinforcing the point that changes can be made.

Home loan redraw FAQs

How often can I redraw?

The frequency with which you can redraw really depends on your home loan because some lenders offer unlimited redraw for free, while others will place a cap on the number of free redraws you can make over a certain period (e.g. one free redraw per month). It’s also worth remembering that some lenders also set minimum redraw amounts (e.g. at least $2,000 per redraw).

Can I redraw on a fixed home loan?

While redraw facilities do tend to be a more common feature of variable home loans, there are still a sizeable number of lenders which offer them with fixed home loans, many of which come without an extra fee attached.

What does ‘available redraw’ mean?

Available redraw is simply the figure which shows you how much you’ve contributed via extra repayments towards your home loan and how much you have available to draw down upon should you need to.

Does a redraw facility cost extra?

There are plenty of lenders out there that don’t charge borrowers a specific fee to use a redraw facility. However, some can charge a $10, $20 or even $50 fee per redraw, so if a redraw facility is a feature you’re likely to use - even on a semi-regular basis - it may be worth opting for a home loan that doesn’t cost you extra.

Looking for home loans with a redraw facility? Head over to our home loan comparison hub to get started. 

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Last updated 13 July 2024 Important disclosures and comparison rate warning*
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Tom Watson
Tom Watson
Finance journalist

Tom has over five years experience as a finance journalist covering everything from property and fintech to consumer banking.

Evlin DuBose
Evlin DuBose
RG146
Senior Money Writer

Evlin, RG146 Generic Knowledge certified and a UTS Communications graduate, is a leading voice in finance news. As Mozo's go-to writer for RBA and interest rates, her work regularly features in Google's Top Stories and major publications like News.com.au.

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate. You can change the loan amount and term in the input boxes at the top of this table. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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