What is a redraw facility?

If your mortgage lender offers to let you redraw money from your home loan, this means you’re able to take any extra repayments you’ve made onto your mortgage back out of your home loan, for when you need this cash back in your bank account. 

A redraw facility can be handy if you want to enjoy the benefits of making extra home loan repayments in addition to your regular monthly repayments, such as shrinking your interest charges, but are concerned about tying up too much of your money into your home loan.

Find and compare redraw facility loans

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2.68%

Variable

2.69%

Suncorp Bank

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.56

/ 5
More details

2.06%

Fixed - 3 years

2.38%

Homestar Finance

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.66

/ 5
More details

2.18%

Fixed - 1 year

2.58%

Homestar Finance

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.15

/ 5
More details

2.34%

Variable

2.34%

Athena Home Loans

$1.3k

Redraw facility
Offset Account
Borrow up to 60%
Extra Repayments
Interest Only
Owner Occupied

3.68

/ 5
More details

2.39%

Variable

2.36%

Athena Home Loans

$1.3k

Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied

3.57

/ 5
More details

2.99%

Variable

2.59%

Athena Home Loans

$748

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

1.85

/ 5
More details

2.69%

Variable

2.69%

Athena Home Loans

$1.4k

Redraw facility
Offset Account
Borrow up to 60%
Extra Repayments
Interest Only
Owner Occupied

2.90

/ 5
More details

2.74%

Variable

2.71%

Athena Home Loans

$1.4k

Redraw facility
Offset Account
Borrow up to 70%
Extra Repayments
Interest Only
Owner Occupied

2.79

/ 5
More details

2.79%

Variable

2.74%

Athena Home Loans

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

2.67

/ 5
More details

2.99%

Variable

2.81%

Athena Home Loans

$748

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

1.85

/ 5
More details

2.68%

Variable

2.69%

Greater Bank

$1.4k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

3.19

/ 5
More details

2.79%

Fixed - 5 years

3.33%

Greater Bank

$1.4k

Redraw facility
Offset Account
Borrow up to 90%
Extra Repayments
Interest Only
Owner Occupied

2.80

/ 5
More details

1.99%

Fixed - 1 year

3.52%

Greater Bank

$1.3k

Redraw facility
Offset Account
Borrow up to 80%
Extra Repayments
Interest Only
Owner Occupied

1.65

/ 5
More details

Learn more about home loans

How does a home loan redraw facility work?

A redraw facility works hand in hand with additional repayments on your home loan, sometimes called “topping up” your home loan.

When you apply for a mortgage, you agree to repay the money you borrow (also known as the principal) in a series of instalments over a long period of time (the loan term). Your lender will add an interest charge to each repayment, based on how much of your principal is still owing – the smaller your principal, the less you’ll pay in interest.

If you pay extra money onto your home loan, this money will go directly onto your mortgage principal, shrinking the total amount you owe on your loan account. Even making a small extra payment onto your mortgage each month may ultimately make a big difference to your loan’s total cost in interest charges. This may also help you to pay off your home sooner so you can make an early exit from your mortgage.  

However, once you’ve used money to pay down your mortgage, it’s not usually possible to access it again if you need it, such as when you need to pay for car repairs or medical bills. This may discourage you from putting too much of your spare change towards paying your home loan.

But if your home loan has a redraw facility, you can opt to redraw any extra repayments you’ve previously made on your mortgage (but not your scheduled mortgage payments) and return them to your bank account. This will increase the size of your loan principal, so you may miss out on some future interest savings, but the flexibility can be very welcome under the right circumstances.

How to redraw

Each mortgage lender has a slightly different redraw process, but here’s a common example of how you can use a redraw facility:

  1. Contact your lender: You may be able to access your redraw facility online through internet banking, over the phone, or by visiting a branch.
  2. Apply to redraw: This may involve filling out an application form, or ticking some boxes on your online banking or bank app.
  3. Receive your funds: The money should arrive in your nominated bank account once the lender has processed your application.

Redraw vs offset vs savings?

Mortgage holders have several options available that could help them not only manage their savings, but potentially reduce the amount of interest they pay.

  • Savings: Putting your money in a savings account or term deposit can allow you to earn interest on your savings and slowly grow your wealth over time. However, to receive the highest savings rates, you’ll often need to fulfil terms and conditions, such as making regular deposits and avoiding making withdrawals.
  • Redraw: You could put your savings into your home loan as extra repayments, shrinking your interest charges and bringing you closer to potentially paying off your property sooner. However, you’ll need a redraw facility in order to access this money again if you need it, and you may be limited by redraw limits and/or redraw fees in some instances.
  • Offset: An offset account is a savings or transaction bank account that’s linked to your home loan. Rather than letting you earn interest on your savings, money in the account is used to offset your mortgage, effectively reducing the total amount you owe when calculating your interest charges. For example, if you owe $300,000 on your mortgage, and have $10,000 saved in your offset account, you’ll be charged interest on your home loan as if you only owed $290,000. You can also transfer money to and from your offset account as easily as any other bank transaction account, which may offer a little more flexibility than some redraw facilities.

Keep in mind that home loans that offer offset accounts, redraw facilities and other special features may have higher interest rates or fees than some other more basic ‘no-frills’ home loans. Consider which options may offer you the most value in your unique financial situation.

How much can I redraw?

If you have a home loan with unlimited redraws, you can redraw as much money from your home loan as you like, whenever you like, limited only by the extra repayments you’ve previously made onto your home loan.

However, some lenders put a maximum limit on how much money you can redraw from your home loan each time. Some lenders also set minimum redraw amounts.

The number of redraws you can make per year may also be limited, or you may need to start paying redraw fees once you go over a certain number of redraws.

Redraw pros and cons

  • Put spare savings onto your mortgage as extra repayments
  • Can help you pay less interest and exit your home loan early
  • Gives you access to your extra mortgage repayments when you need them
  • May be limited by your lender
  • May require you to pay fees
  • Redrawing extra repayments means missing out on future interest savings

Do fixed rate home loans offer redraw facilities?

While the extra features different home loans include may vary from one loan to the next, redraw facilities are offered on a selection of both variable and fixed interest rate home loans. Making a home loan comparison on RateCity will allow you to compare both variable and fixed rate loans, as well as narrow down your search results to only those that include a redraw facility.

Redraw fees

Some mortgage lenders may charge fees for your redraw facility, which could include:

  • Redraw activation fee: A flat fee charged for having a redraw facility available on your home loan. This may not be included with your home loan’s other upfront fees when you first apply for the loan, and instead be charged when you first choose to activate and use your redraw facility.
  • Fee per redraw: A flat fee charged each time you use your redraw facility, to help cover the admin cost of processing your redraw.
  • Limited free redraws: Some mortgage lenders will offer a set number of free redraws each year, then start charging a flat fee for each subsequent redraw. Others won’t charge redraw fees but will set a maximum redraw amount, limiting the number of times you can redraw funds from your mortgage per year.

There are select home loans that have no redraw fees for eligible borrowers. In some cases, it can be difficult to determine whether a home loan provider charges redraw fees. Comparing home loans on RateCity can be one of the best ways you can quickly and easily find out the basic features of home loans, including details on redraw facilities and any fees associated. Alternatively, contact your mortgage broker for information specific to your personal financial situation.

Frequently asked questions

What is a redraw fee?

Redraw fees are charged by your lender when you want to take money you have already paid into your mortgage back out. Typically, banks will only allow you to take money out of your loan if you have a redraw facility attached to your loan, and the money you are taking out is part of any additional repayments you’ve made. The average redraw fee is around $19 however there are plenty of lenders who include a number of fee-free redraws a year. Tip: Negative-gearers beware – any money redrawn is often treated as new borrowing for tax purposes, so there may be limits on how you can use it if you want to maximise your tax deduction.

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

What is an ongoing fee?

Ongoing fees are any regular payments charged by your lender in addition to the interest they apply including annual fees, monthly account keeping fees and offset fees. The average annual fee is close to $200 however there are almost 2,000 home loan products that don’t charge an annual fee at all. There’s plenty of extra costs when you’re buying a home, such as conveyancing, stamp duty, moving costs, so the more fees you can avoid on your home loan, the better. While $200 might not seem like much in the grand scheme of things, it adds up to $6,000 over the life of a 30 year loan – money which would be much better off either reinvested into your home loan or in your back pocket for the next rainy day.

Example: Anna is tossing up between two different mortgage products. Both have the same variable interest rate, but one has a monthly account keeping fee of $20. By picking the loan with no fees, and investing an extra $20 a month into her loan, Josie will end up shaving 6 months off her 30 year loan and saving over $9,000* in interest repayments.

What are the responsibilities of a mortgage broker?

Mortgage brokers act as the go-between for borrowers looking for a home loan and the lenders offering the loan. They offer personalised advice to help borrowers choose the right home loan for their needs.

In Australia, mortgage brokers are required by law to carry an Australian Credit License (ACL) if they offer credit assistance services. Which is the legal term for guidance regarding the different kinds of credit offered by lenders, including home loan mortgages. They may not need this license if they are working for an aggregator, for instance, as a franchisee. In both these situations, they need to comply with the regulations laid down by the Australian Securities and Investments Commission (ASIC).

These regulations, which are stipulated by Australian legislation, require mortgage brokers to comply with what are called “responsible lending” and “best interest” obligations. Responsible lending obligations mean brokers have to suggest “suitable” home loans. This means loans that you can easily qualify for,  actually meet your needs, and don’t prove unnecessarily challenging for you.

Starting 1 January 2021, mortgage brokers must comply with best interest obligations in addition to responsible lending obligations. These require mortgage brokers to act in the best interest of their customers and also requires them to prioritise their customers’ interests over their own. For instance, a mortgage broker may not recommend a lender who gives them a commission if that lender’s home loan offer does not benefit that particular customer.

How does a redraw facility work?

A redraw facility attached to your loan allows you to borrow back any additional repayments that you have already paid on your loan. This can be a beneficial feature because, by paying down the principal with additional repayments, you will be charged less interest. However you will still be able to access the extra money when needed.

How do I refinance my home loan?

Refinancing your home loan can involve a bit of paperwork but if you are moving on to a lower rate, it can save you thousands of dollars in the long-run. The first step is finding another loan on the market that you think will save you money over time or offer features that your current loan does not have. Once you have selected a couple of loans you are interested in, compare them with your current loan to see if you will save money in the long term on interest rates and fees. Remember to factor in any break fees and set up fees when assessing the cost of switching.

Once you have decided on a new loan it is simply a matter of contacting your existing and future lender to get the new loan set up. Beware that some lenders will revert your loan back to a 25 or 30 year term when you refinance which may mean initial lower repayments but may cost you more in the long run.

How can I calculate interest on my home loan?

You can calculate the total interest you will pay over the life of your loan by using a mortgage calculator. The calculator will estimate your repayments based on the amount you want to borrow, the interest rate, the length of your loan, whether you are an owner-occupier or an investor and whether you plan to pay ‘principal and interest’ or ‘interest-only’.

If you are buying a new home, the calculator will also help you work out how much you’ll need to pay in stamp duty and other related costs.

How does an offset account work?

An offset account functions as a transaction account that is linked to your home loan. The balance of this account is offset daily against the loan amount and reduces the amount of principal that you pay interest on.

By using an offset account it’s possible to reduce the length of your loan and the total amount of interest payed by thousands of dollars. 

Example: If you have a mortgage of $500,000 but holding an offset account with $50,000, you will only pay interest on $450,000 rather then $500,000.

How can I pay off my home loan faster?

The quickest way to pay off your home loan is to make regular extra contributions in addition to your monthly repayments to pay down the principal as fast as possible. This in turn reduces the amount of interest paid overall and shortens the length of the loan.

Another option may be to increase the frequency of your payments to fortnightly or weekly, rather than monthly, which may then reduce the amount of interest you are charged, depending on how your lender calculates repayments.

What is an interest-only loan? How do I work out interest-only loan repayments?

An ‘interest-only’ loan is a loan where the borrower is only required to pay back the interest on the loan. Typically, banks will only let lenders do this for a fixed period of time – often five years – however some lenders will be happy to extend this.

Interest-only loans are popular with investors who aren’t keen on putting a lot of capital into their investment property. It is also a handy feature for people who need to reduce their mortgage repayments for a short period of time while they are travelling overseas, or taking time off to look after a new family member, for example.

While moving on to interest-only will make your monthly repayments cheaper, ultimately, you will end up paying your bank thousands of dollars extra in interest to make up for the time where you weren’t paying off the principal.

How do I calculate monthly mortgage repayments?

Work out your mortgage repayments using a home loan calculator that takes into account your deposit size, property value and interest rate. This is divided by the loan term you choose (for example, there are 360 months in a 30-year mortgage) to determine the monthly repayments over this time frame.

Over the course of your loan, your monthly repayment amount will be affected by changes to your interest rate, plus any circumstances where you opt to pay interest-only for a period of time, instead of principal and interest.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

What if I can't pay off my guaranteed home loan?

If you can’t pay off your guaranteed home loan, your lender might chase your guarantor for the money.

A guaranteed home loan is a legally binding agreement in which the guarantor assumes overall responsibility for the mortgage. So if the borrower falls behind on their mortgage, the lender might insist that the guarantor cover the repayments. If the guarantor fails to do so, the lender might seize the guarantor’s security (which is often the family home) so it can recoup its money.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Do mortgage brokers need a consumer credit license?

In Australia, mortgage brokers are defined by law as being credit service or assistance providers, meaning that they help borrowers connect with lenders. Mortgage brokers may not always need a consumer credit license however if they’re operating solo they will need an Australian Credit License (ACL). Further, they may also need to comply with requirements asking them to mention their license number in full.

Some mortgage brokers can be “credit representatives”, or franchisees of a mortgage aggregator. In this case, if the aggregator has a license, the mortgage broker need not have one. The reasoning for this is that the franchise agreement usually requires mortgage brokers to comply with the laws applicable to the aggregator. If you’re speaking to a mortgage broker, you can ask them if they receive commissions from lenders, which is a good indicator that they need to be licensed. Consider requesting their license details if they don’t give you the details beforehand. 

You should remember that such a license protects you if you’re given incorrect or misleading advice that results in a home loan application rejection or any financial loss. Brokers are regulated by the Australian Securities & Investment Commission (ASIC), as per the National Consumer Credit Protection (NCCP) Act. 

How to break up with your mortgage broker

If you find a mortgage broker giving you generic advice or trying to sell you a competitive offer from an unsuitable lender, you might be better off  breaking up with the mortgage broker and consulting someone else. Breaking up with a mortgage broker can be done over the phone, or via email. You can also raise a complaint, either with the broker’s aggregator or with the Australian Financial Complaints Authority as necessary.

As licensed industry professionals, mortgage brokers have the responsibility of giving you accurate advice so that you know what to expect when you apply for a home loan. You may have approached the mortgage broker, for instance, because you have questions about the terms of a home loan a lender offered you. 

You should remember that mortgage brokers are obliged by law to act in your best interests and as part of complying with The Australian Securities and Investments Commission’s (ASIC) regulations. If you feel you didn’t get the right advice from the mortgage broker, or that you lost money as a result of accepting the broker’s suggestions regarding a lender or home loan offer, you can file a complaint with the ASIC and seek compensation. 

When you first speak to a mortgage broker, consider asking them about their Lender Panel, which is the list of lenders they usually recommend and who may pay them a commission. This information can help you decide if the advice they give you has anything to do with the remuneration they may receive from one or more lenders.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

Can I get a home loan if I am on an employment contract?

Some lenders will allow you to apply for a mortgage if you are a contractor or freelancer. However, many lenders prefer you to be in a permanent, ongoing role, because a more stable income means you’re more likely to keep up with your repayments.

If you’re a contractor, freelancer, or are otherwise self-employed, it may still be possible to apply for a low-doc home loan, as these mortgages require less specific proof of income.

Will I have to pay lenders' mortgage insurance twice if I refinance?

If your deposit was less than 20 per cent of your property’s value when you took out your original loan, you may have paid lenders’ mortgage insurance (LMI) to cover the lender against the risk that you may default on your repayments. 

If you refinance to a new home loan, but still don’t have enough deposit and/or equity to provide 20 per cent security, you’ll need to pay for the lender’s LMI a second time. This could potentially add thousands or tens of thousands of dollars in upfront costs to your mortgage, so it’s important to consider whether the financial benefits of refinancing may be worth these costs.