What is a redraw facility?

A redraw facility is a feature attached to some home loans that lets you access money you have paid above the minimum required repayment amount. When you make extra payments on your mortgage, those funds sit in a redraw account, and the lender allows you to withdraw them if you need cash later.

Redraw facilities typically come with conditions. Most lenders set a minimum amount you must redraw at once (often $500 to $1,000), limit the number of redraws per year, or charge fees for each withdrawal. Some lenders also restrict redraws once you reach the end of the loan term or if you fall behind on payments. The facility can only be used on the amount you have actually paid down, not on your full loan balance.

A key difference from an offset account is that extra payments in a redraw facility do not reduce the interest you are charged going forward, whereas an offset account does. This makes an offset account more tax-efficient and faster for saving interest. However, redraw facilities remain useful if you want to build flexibility into your loan and retain access to money you have contributed.

Understanding the terms of your redraw facility matters when budgeting. A mortgage broker in Perth can explain whether redraw or offset features suit your needs and help you compare loan products that offer either option.