A redraw facility is a feature on many home loans that allows you to access any extra repayments you’ve made on top of your minimum required loan repayments.

Here's how it works:

• When you pay more than the minimum monthly repayment, the extra amount goes towards reducing your loan balance.

• This helps reduce the interest you pay and may shorten your loan term.

• The redraw facility lets you “redraw” or withdraw these extra funds if you need them later—like for emergencies, renovations, or large purchases.

Key features:

• Interest savings: Extra repayments reduce your loan balance, lowering interest.

• Flexible access: You can access surplus funds (subject to lender terms).

• Limits may apply: Some loans restrict how often or how much you can redraw.

• Fees may apply: Some lenders charge fees for using the redraw facility.

Example:

If your minimum repayment is $2,000/month but you pay $2,500/month, that extra $500 builds up in your redraw facility. If you’ve accumulated $10,000 in extra repayments, you may be able to withdraw (redraw) that amount if needed.

• If you’ve made extra repayments on your variable rate home loan, you may be able to access those funds through the redraw facility.

• The amount available to redraw depends on how far ahead you are with your repayments—you generally need to be at least one full repayment ahead to use this feature.

• You can build your redraw balance by making lump sum contributions or regular additional payments that exceed your minimum scheduled repayments.

• Keep in mind that when you redraw funds, your home loan balance increases, which means you may end up paying more interest over time.

Home loan redraw facilities offer flexibility, but they often come with certain restrictions and conditions that vary depending on the lender and loan product. Here are the common restrictions to be aware of:

1. Minimum redraw amounts

• Many lenders set a minimum redraw limit, such as $500 or $1,000 per transaction.

• You may not be able to withdraw small amounts.

2. Redraw frequency limits

• Some loans restrict how often you can redraw—e.g., only once per month or a limited number of free redraws per year.

• Additional redraws may incur fees.

3. Must be ahead on repayments

• You can only redraw funds that are above your minimum scheduled repayments.

• If you're not ahead, you won't have any redraw balance to access.

Loan balance increases

• Redrawing funds increases your home loan balance, which will lead to more interest being charged and possibly a longer loan term unless you increase repayments again.

Fees may apply

• Some lenders charge a redraw fee, especially on fixed rate loans or older loan products.

• Online redraws may be free, but in-branch or manual redraws could attract charges.

Processing delays

• Redraws may not be instant. Some banks take 1–3 business days to process requests, especially for large amounts or during weekends/public holidays.

Fixed rate loan restrictions

• Many fixed rate loans limit or completely prohibit redraws during the fixed term.

• If redraw is allowed, it may be capped (e.g., $10,000 per year).

Loan type limitations

• Some basic or low-fee home loans may not include a redraw facility at all, or have reduced features compared to standard loans.

Lender discretion

• In some cases (especially during financial hardship or credit assessment), the lender may restrict or freeze access to your redraw funds—even if you're ahead on repayments.

Summary:

While redraw facilities are useful, they are not as flexible or immediate as offset accounts. Always check your loan’s terms and conditions or speak to your lender to understand the specific redraw rules that apply to your home loan.

An offset facility (or offset account) is a transaction account that is linked to your home loan, and its balance is used to reduce the amount of interest charged on your loan.

How it works:

Instead of earning interest on the money in your everyday bank account, the balance is offset daily against your home loan balance, reducing the amount on which interest is calculated.

Example:

• Home loan balance: $500,000

• Offset account balance: $50,000

• Interest is charged on: $450,000 (not $500,000)

This means you save on interest and may pay off your loan faster, without locking the money away.

Key features:

• Full access: You can deposit and withdraw funds anytime like a regular bank account.

• Interest savings: Reduces interest charged on your home loan.

• Flexible: Good for people who want liquidity and interest savings.

• Types:

  • 100% offset account: Offsets the full balance.

  • Partial offset account: Only a portion of the balance offsets the loan (e.g., 50%).

Summary:

The key to maximising an offset account is simple: treat it like your savings account, keep as much in it as possible, and let it work daily to reduce your loan interest—all without locking your money away.

1. Keep as much money in your offset account as possible

• The higher your offset account balance, the more interest you’ll save.

• Use it as your main transaction or savings account where your salary and other income are deposited.

2. Deposit your income directly into the offset account

• Arrange for your wages, rent, or other income to be paid straight into your offset.

• Interest on your loan is usually calculated daily, so every day your offset balance is higher, you save more.

3. Minimise withdrawals

• Only transfer out what you need for bills and essentials.

• Let your offset account build up where possible—think of it like a high-impact savings account with better value than interest-earning savings.

4. Use a credit card for everyday spending (carefully)

• If you’re disciplined, use a credit card with up to 55 days interest-free for daily expenses, and keep money in your offset account longer.

• Pay the credit card off in full each month from your offset to avoid interest charges.

5. Combine multiple offset accounts (if your lender allows)

• Some lenders offer multi-offset features where several accounts can offset the same loan.

• This can help if you like to separate money for different goals (e.g. bills, emergency fund, savings) without losing interest savings.

6. Avoid transferring large sums to other accounts

• Leaving large balances in your offset instead of separate savings accounts increases your loan interest savings.

• Unlike savings interest, which is taxable, the savings from offset accounts are not taxed.

7. Review fees and features

• Ensure your offset account is truly a 100% offset account (not partial) and doesn’t have high ongoing fees that eat into your savings.