Home Loans with a Redraw Facility

The majority of home loans now offer a redraw facility and well over 50% of home loan purchasers who have signed up to a home loan in the last 10 years have opted to include a redraw facility on their home loan.  


What is a redraw facility?

A redraw facility on your home loan enables you to accelerate the repayment of your home loan by making additional payments, on top of your minimum loan repayments, with the objective of reducing your interest payments and repaying your home loan off faster.

The term redraw is used to describe this feature, as you are able to redraw the additional funds you have paid into your mortgage at any time you wish.

To take advantage of a home loan redraws facility you must first make additional payments to your mortgage account. These additional repayments can be one off sums off cash or intermittent payments when you have available funds.

For example, if your minimum monthly home loan repayment is $800 and for 12 months you pay $900, an extra $100 each month, and also make a lump sum payment of $5,000 during the year, you will have made a total additional payment at the end of this 12 month period of  $6,200 ($5,000 + $1,200).  Should you wish to redraw some money from your home loan in the future, the total sum available to within your redraw facility would be  $6,200.

If your circumstances enable you to keep the $6,200 additional repayment amount on your loan this would lead to a reduction in the interest you will pay over the term of the home loan and also shorten the time it will take you repay the home loan in full.


How much interest could a redraw facility save me?

The amount of interest you could potentially save on your home loan by using a redraw facility is directly affected by 4 factors:

  • The amount of any regular monthly additional payments you make to your home loan
  • The amount of any lump sums you make to your home loan
  • The time you make any addition payments to your home loan
  • Do you make any withdrawals from your redraw facility

If we assume you make no withdrawals from your redraw facility we can calculate the savings in interest and time by which you could shorten your home loan by making additional payments.  For the purposes of this example we will assume your home loan is $400,000 with a loan term of 25 years, and your home loan interest rate is 5.00%.


  Home Loan terms



  Home loan amount



  Home loan term

25 years


  Home loan interest rate



  Monthly Repayment



  Extra repayments made each     month


 It is assumed that this additional  $200 is paid from month one of the home loan and the paid every month thereafter

  Total monthly repayment including extra monthly amount



  Interest Saving over the 25 year Term



  Reduction in loan term

3 years and 6 months



From this example it is clear that the interest saving benefits of a redraw facility can be significant. These savings are further amplified if you are able to introduce a lump sum to your home loan. Taking the example above, but instead of contributing an additional $200 per month we are fortunate enough to have the ability to contribute an additional $50,000 at the start of the 2nd year of the home loan (in month 13) this payment would deliver an interest saving of $96,000 and reduce the term of the home loan by 5 years and 2 months.


The features of a Redraw Facility

A Redraw facility is now offered as an option with most variable rate home loans, though the terms and conditions associated with the redraw facilities can vary greatly between the home loan providers. To help you select the best home loan with a redraw facility consider comparing this checklist of redraw facility features to identify the facility most relevant to your financial circumstances.


1. Redraw Facility Activation Fee

This activation fee is charged the first time the redraw facility is used with no further charges being made when any further withdrawals are made. If you do not use the redraw facility during the term of your home loan will not be charged any fee.

2. Fee per Redraw

The fee per redraw is the amount the home loan customer must pay each time they withdraw funds from their home loan account using the redraw facility. This fee per redraw can be as high as $50 though many redraw facilities is on offer, which levies no fees on any redraws.

3. Fees related to the number of Redraws per year

Many redraw facilities provide the home loan customer with unlimited free redraws while some providers offer a number of free redraws per year. Once the quota of free redraws is exceeded the home loan customer must pay the fee per redraw.

4. Limit on the number of redraws per year

Many redraw facilities place a limit on the number of redraws the home loan customer is able to make across a set period, usually a year. Once this maximum number of withdrawals is reached the home loan customer will not be able to make any further redraws until the next year

5. Minimum redraw amount

Most Redraw facilities stipulate a minimum amount that must be withdrawn for each redraw.

6. Maximum redraw amount

The maximum redraw amount is the largest amount you can withdraw at any one time. In most cases this will be equal to the total of the extra repayments you have made to your home loan. So for example if you have made $5, 000 in extra repayments in addition to your minimum loan repayment you can will be able to redraw $5, 000.

A number of redraw facilities set the maximum redraw amount at the total of additional repayments less one months repayments, while others set a fixed amount that you can withdraw regardless of how much of the value of the extra repayments you may have made


Using the flexibility of a redraw facility

Given it’s flexibility the redraw facility on your home loan can be an effective alternative to a savings account for any spare funds you have. Choosing to lodge your additional funds into your home loan as opposed to a regular savings account delivers 2 surprising benefits:

1. When you make an additional repayment on your mortgage you are effectively earning the interest on these funds at the interest rate you are being charged by your home loan provider, which will tend to be higher than the rates offered on savings accounts.

2. By choosing to place your spare funds into your home loan account as opposed to a savings account the savings you make are also tax free, as any income you make from interest on savings accounts will be taxable income.

Managed carefully redraw facilities can be a cheap and effective way to minimize the amount of interest you pay on your mortgage while cost effectively using any spare funds you have at your disposal.