These days, most Aussie home loan products offer a redraw facility a feature that can help you save interest and pay off your mortgage faster. So it's worth getting your head around how they work. 

What is a redraw facility?

Redraw facility

A redraw facility allows you to access any extra payments you have made on your mortgage.

Paying more than the minimum each month directly reduces the principal balance owed, thereby reducing how much interest you're charged the following month, and so on and so forth. Most lenders allow borrowers to make extra payments, but if your loan comes with a redraw facility, you can 'redraw' it back out again if and when you need to.

See also: Offset account vs redraw facility

How much could you save with a redraw facility?

A redraw can provide reassurance for people who are apprehensive about whether they can afford to overpay on their home loan, and allow them to benefit from a reduced interest bill. Even small overpayments can quickly add up to major savings on your total interest bill.

Imagine you borrow $500,000 at 5.00% p.a. interest rate over 30 years.

This is how regular overpayments could reduce your total interest bill, as per our home loan repayment calculator.

Extra
monthly
payment
Life of
loan
savings
Total
interest
Time to
pay off
mortgage
$0 $0 $466,279 30 years
$10 $4,686 $461,593 29 years, 10 months
$100 $42,599 $423,680 27 years, 10 months
$1,000 $227,738 $238,541 17 years, 4 months

Can a redraw facility reduce the size of your repayments?

While paying extra and building up your redraw facility can reduce the total amount of interest you pay, it won’t necessarily change the size of your regular repayments.

Any extra repayments you make will go toward reducing your loan’s principal balance, and a redraw facility allows you to access those additional payments if you need. Your regular repayment will remain the same, but more of each payment will go toward the principal rather than interest. This could see you paying off the loan faster.

Though, if the balance of your redraw facility is significant, you might be able to negotiate with your lender to reduce the size of your regular repayments.

How a redraw facility can help you pay off your mortgage faster

A major benefit of overpaying on your home loan is the potential to pay it off faster, since overpayments go towards paying down the principal.

Returning to the above example, if you borrowed $500,000 over 30 years with a 5% interest rate, your repayments would be around $2,685 a month.

If you paid $200 extra every month, you’d be mortgage-free in around 26 years and pay nearly less in $77,000 interest, but your minimum monthly repayment would stay at $2, 685.

Putting $1,000 extra into that same loan each month would see the loan paid off in 17 years.

Can you make home loan repayments directly from your redraw balance?

If you’re ahead on your home loan and have built up extra funds in your redraw facility, you might be able to use that balance to cover your monthly repayments. This could allow you to take a repayment holiday – essentially pausing your regular payments by drawing from your available redraw balance instead of out of pocket.

Not all lenders offer this option, however. You’ll likely need to contact your lender directly to confirm your eligibility.

See also: 3 crucial things to know before you defer your home loan payments

Redraw facility: Red flags to look for

Extra fees and higher rates

While a redraw facility is commonly free to use, some lenders charge borrowers when they withdraw their extra repayments.

It's also worth nothing that home loans with redraw facilities might charge higher rates, as well as more fees, than those without. Most mortgages come with redraw facilities these days, however.

Redraw conditions

Unlike offset accounts, accessing the money in a redraw isn't as simple as swiping your card or shifting it into another account. You might need to make a redraw request and wait for it to be processed, or there might also be limitations on how often redraw can be used. There may also be limitations on the minimum and maximum amount that can be redrawn.

It's worth asking your lender whether there are any conditions to the use of its redraw facility.

How to compare home loans with redraw facilities

As the terms and conditions of redraw facilities differ significantly among lenders, it is important to understand what's on offer before you take out the loan.

It's important that you answer these questions before signing on the dotted line:

1. Is there a fee for having or using a redraw facility

Some mortgages demand a person pays a flat fee for having a redraw facility. Sometimes this won't be charged until the redraw facility is activated.

Other lenders might demand a borrower pays a fee each time they withdraw funds using their redraw facility. This fee can vary significantly between lenders, and many don't charge one at all.

2. Is there a maximum number of redraws or free redraws per year?

Some redraw facilities grant the borrower unlimited free redraws while some lenders offer a number of free redraws per year. Other lenders might limit the number of times a borrower can use their redraw within a set period.

3. Is there a minimum amount you can redraw?

Lenders often instate a minimum amount that can be withdrawn at once using a redraw facility. Whether this exists and how much is it determines the true flexibility of a redraw facility.

4. Is there a maximum redraw amount?

Other times, a lender might have set a maximum amount that a homeowner can redraw in one go. This might be the total amount of additional repayments, less one month's repayments, or the total value of additional repayments you have made.

Is a redraw facility right for you?

Although making extra repayments and having a redraw facility offers many advantages, it will likely only help the right type of borrower. It's important to determine whether a redraw facility will suit your financial circumstances and your personal approach.

There's little point paying for something you're not going to use, so if it's unlikely you'll be able to make additional repayments on your home loan in the foreseeable future, there isn't much point going out of your way to have a redraw facility.

For those who can afford to make extra repayments though, a redraw can help lower your interest bill and potentially pay off the loan sooner.


Update resultsUpdate
LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees Max LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkComparePromoted ProductDisclosure
6.04% p.a.
6.06% p.a.
$3,011
Principal & Interest
Variable
$0
$530
90%
4.6 STAR CUSTOMER RATINGS
  • Available for purchase or refinance, min10% deposit needed to qualify.
  • No application, ongoing monthly or annual fees.
  • Dedicated loan specialist throughout the loan application.
Disclosure
5.99% p.a.
5.90% p.a.
$2,995
Principal & Interest
Variable
$0
$0
80%
  • A low-rate variable home loan from a 100% online lender.
  • Backed by the Commonwealth Bank.
Disclosure
6.14% p.a.
6.16% p.a.
$3,043
Principal & Interest
Variable
$0
$350
60%
Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of .

Important Information and Comparison Rate Warning


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