What type of borrower would benefit the most from a redraw facility?

Owner-occupiers often benefit the most from a redraw facility because it’s usually free and easy to use. However, an offset account can also be useful. Some borrowers might find it beneficial to use both: for example, you could make extra payments on your mortgage and keep your savings in an offset account to help lower your interest costs.

What is a repayment holiday?

A repayment holiday on a home loan lets you pause your regular repayments for a set period, typically between 3 to 12 months. During this time, you can use the extra money you’ve already paid into the loan to cover the missed repayments. This can help if you’re facing a temporary cash flow issue. Keep in mind that each lender has different rules for repayment holidays.

Can banks refuse redraw?

Yes, some banks can refuse a redraw request if certain conditions aren’t met. They might deny your request if you haven’t made enough extra payments, if you exceed any limits they set, or if there are problems with your loan account. Always check the fine print or ask your [mortgage broker](/what-is-a-mortgage-broker) to explain the terms and conditions. For example, NAB lists reasons why you might [not be able to access a redraw](https://www.nab.com.au/personal/home-loans/redraw), such as if you want to withdraw less than $500 or if you plan to use the funds for business purposes.

I’m refinancing, is there anything I should be aware of?

If you’re [refinancing](/refinance-home-loans) and switching from a variable rate loan to a fixed rate loan, you’ll potentially lose access to the redraw facility. This is because fixed rate loans often don’t include redraw options, so any extra funds you’ve paid into your current loan may not be accessible once you switch.

Home Loan Redraw Facility Explained: Pros & Cons

A home loan redraw is a feature that lets you make extra payments on your mortgage and access the additional funds if needed.

Some lenders may have limits on how much you can withdraw and there may be fees or conditions you need to meet.

Redraw facilities are commonly available with owner-occupier home loans, as most lenders offer this feature.

What is a redraw facility?

A home loan redraw facility is a feature that allows you to access any extra payments you’ve made beyond your minimum loan repayments.

This means you can withdraw these additional funds if needed or leave them to save on interest costs due to the reduced loan balance.

Redraw facilities are available on most variable rate home loans and some fixed loans (these will often have limits on extra repayments).

How does redraw work on a home loan?

When you make additional payments into your home loan, this extra cash reduces the amount you owe and lowers your interest bill. If you need access to these funds later, you can withdraw them through the redraw facility.

For example:

Imagine you have a home loan with a $300,000 balance and you’re making monthly repayments of $1,500.
Over the year, you pay an extra $250 each month, totalling $3,000 in additional payments.
After 12 months, your loan balance is reduced by this extra amount, saving you interest.
If you then need $2,000 for car repairs, you can use the redraw facility to withdraw this amount from the $3,000 extra payments you’ve made, leaving you with $1,000 still available to redraw.

What happens when you withdraw funds from a redraw facility?

You can usually transfer extra funds from your home loan’s redraw facility to your regular bank account. Once the money is in your transaction account, you can withdraw and use it as needed.

When you withdraw from your redraw facility, the amount you take out is added back to your loan balance. This means you’ll owe more on your home loan, which will increase the interest charged to your loan.

Does it cost you money to use a redraw facility?

Accessing your extra cash from a redraw facility is often free of charge if you use online banking to make the transaction. However, there may be fees if you request a redraw in person at a branch or through telephone banking. Some home loans will also allow a certain number of free redraws per month before fees kick in.

It’s a good idea to check with your lender for specific details on any potential costs and available methods for accessing your funds.

Tip: A mortgage broker can help you by comparing home loan options with redraw facilities from different lenders to find the best fit for your needs. They can also explain the terms and conditions of each home loan redraw, including any fees or limitations.

Here are some key differences between a home loan redraw facility and an offset account:

	What is it?
Redraw facility	A home loan feature that’s part of your mortgage account.
Offset account	A separate transaction account that’s linked to your mortgage.
	How does it work?
Redraw facility	You can make extra payments on your home loan to reduce your balance and save on interest, and then withdraw those extra funds later if needed.
Offset account	The amount of money in your offset account lowers the amount of your home loan balance that’s used to calculate interest charges.
	Do all lenders offer these features?
Redraw facility	Almost all variable rate home loans and some fixed loans offer this feature, though fixed loans often have limits on extra payments.
Offset account	Commonly available on variable home loans, but less so with fixed rate loans.
	Is it free to use?
Redraw facility	Redrawing funds online is usually free, but there may be a fee if you do it in person at a branch or over the phone.
Offset account	Some lenders may charge an additional fee for accessing an offset account or apply a higher interest rate to the loan.
	How to access/withdraw money
Redraw facility	You can transfer money from your home loan account to a transaction account via bank transfer, but you won’t be able to use a debit card.
Offset account	You generally use it like any other transaction account, such as by transferring funds to other accounts and using a debit card.
	Is there a limit on the interest you can save?
Redraw facility	Extra repayments might be limited on fixed rate loans but there are usually no limits on variable rate loans.
Offset account	No limits if it’s a 100% offset account. Some loans provide only a partial offset (i.e. 50%).
	Is there a limit to how much you can withdraw?
Redraw facility	Any amount up to the extra funds you’ve paid into the loan. Some lenders may restrict how much you can withdraw (i.e. no more than $2,000 per year).
Offset account	Any amount up to the balance of the account. If your account is linked to a loan with a partial offset feature, only a portion of the balance will reduce your loan interest.
	Pros
Redraw facility	You’re effectively lowering your debt with the extra repayments, while still being able to access those funds if needed.
Offset account	Reduces the interest you pay on your home loan by offsetting the balance of your account against your loan amount.
	Cons
Redraw facility	Accessing your funds can be more difficult and some lenders may impose limits on how much you can withdraw.
Offset account	Loans with an offset account often come with a higher interest rate.

	Redraw facility	Offset account
What is it?	A home loan feature that’s part of your mortgage account.	A separate transaction account that’s linked to your mortgage.
How does it work?	You can make extra payments on your home loan to reduce your balance and save on interest, and then withdraw those extra funds later if needed.	The amount of money in your offset account lowers the amount of your home loan balance that’s used to calculate interest charges.
Do all lenders offer these features?	Almost all variable rate home loans and some fixed loans offer this feature, though fixed loans often have limits on extra payments.	Commonly available on variable home loans, but less so with fixed rate loans.
Is it free to use?	Redrawing funds online is usually free, but there may be a fee if you do it in person at a branch or over the phone.	Some lenders may charge an additional fee for accessing an offset account or apply a higher interest rate to the loan.
How to access/withdraw money	You can transfer money from your home loan account to a transaction account via bank transfer, but you won’t be able to use a debit card.	You generally use it like any other transaction account, such as by transferring funds to other accounts and using a debit card.
Is there a limit on the interest you can save?	Extra repayments might be limited on fixed rate loans but there are usually no limits on variable rate loans.	No limits if it’s a 100% offset account. Some loans provide only a partial offset (i.e. 50%).
Is there a limit to how much you can withdraw?	Any amount up to the extra funds you’ve paid into the loan. Some lenders may restrict how much you can withdraw (i.e. no more than $2,000 per year).	Any amount up to the balance of the account. If your account is linked to a loan with a partial offset feature, only a portion of the balance will reduce your loan interest.
Pros	You’re effectively lowering your debt with the extra repayments, while still being able to access those funds if needed.	Reduces the interest you pay on your home loan by offsetting the balance of your account against your loan amount.
Cons	Accessing your funds can be more difficult and some lenders may impose limits on how much you can withdraw.	Loans with an offset account often come with a higher interest rate.

On the surface, both features chip away at the interest you pay while still keeping the funds accessible. But, choosing between the two will ultimately come down to your personal needs and financial situation.

For owner-occupier home loans, a redraw facility might be more suitable since it’s usually free, while property investors may prefer an offset account as it could have certain tax advantages over redraw.

Most lenders won’t charge you for using a redraw facility but there may be limitations and conditions. Meanwhile, most loans with an offset account will come with a fee but your funds are often easier to access.