Redrawing on your home loan


A redraw facility is a relatively simple home loan feature that can be easily overlooked among all the other bells and whistles available when you're comparing home loan products.

Redraw facilities allow borrowers to pay more than the required repayment amount into their home loan and have access to those funds again at a later date if they wish.

In this way, they are similar to having an offset account linked to your home loan account. The difference is that extra money paid into a loan with a redraw facility goes towards reducing the loan balance, while an offset account has the same effect on interest accruing without lowering the balance.

Funds available through a redraw feature are sometimes not as readily available as those in an offset account. Some people find the small barriers helpful in managing their temptation to spend.

Why redraw?

Redraw facilities can be a cost effective tool compared to other loan features. They are often available on the simplest and cheapest of home loan products, while loans with offset accounts may charge higher interest rates.

Many variable home loans, and some fixed rate loans, offer redraw but there are differences between products so it's important to understand the details if you're planning to use the facility.

There may be restrictions on the minimum and maximum amount you can redraw at one time. There may also be a limit to the number of times you can redraw from the loan.

Some loans offer a number of redraws at no cost while others may charge fees for every transaction. The cost may vary depending on whether the transaction is conducted online or via a branch.

Consider the alternatives

The charges and restrictions that often apply to redraw facilities mean they typically suit people who plan to get ahead on their home loan repayments but only want to redraw every now and then.

Over-paying on a home loan and then redrawing may be a good strategy for saving to take a holiday, buy a new car or pay for a major one-off maintenance expense such as a roof replacement. You could also reinvest the money elsewhere when you're ready, in shares or another property, for instance.

An offset account linked to your home loan may be more suitable if you're planning to make regular, smaller withdrawals, as there are typically no transaction charges and the money is more readily at call.

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Unless stated otherwise, this information has been prepared by Macquarie Bank Limited ABN 46 008 583 542 AFSL and Australian Credit Licence 237502 and does not take into account your objectives, financial situation or needs. You should consider whether it is appropriate for you. All applications are subject to Macquarie's standard credit approval criteria.