The short version
- Redraw lets you take back extra repayments you've made.
- Extra money in the loan cuts the interest you pay.
- Check for fees, minimums and limits on how often you can redraw.
What redraw is
Redraw lets you take back extra repayments you've made on your loan, above the minimum the lender asks for. How much you can redraw depends on how far ahead you are.
While the extra money sits in the loan it cuts the interest you pay, which usually saves more than keeping it in a savings account, because home loan rates are usually higher than savings rates.
Why people use it
- Less interest. Every extra dollar in the loan lowers the balance interest is charged on.
- A shorter loan. Keep paying extra and you can pay the loan off sooner.
- A buffer. You can take money back out for a renovation or an emergency, usually at a lower rate than a personal loan or credit card.
Redraw or offset
Both cut interest. Offset money sits in a separate everyday account you can spend from, while redrawn money comes out of the loan itself. Loans with offset sometimes have higher rates or fees, so compare the comparison rate.
For an investment property, redrawing for personal use can affect what interest you can claim, so check with a tax adviser.
Pros
- Less interest while the money sits in the loan.
- A buffer for emergencies or a renovation.
- Usually free online, on most variable loans.
Cons
- The lender can limit or stop redraw.
- Fees or minimums on some loans.
- Easy to spend money you meant to keep in the loan.
What to check
- Limits. Some lenders cap how many redraws you can make, or set a minimum amount.
- Fees. Some charge each time you redraw.
- How it works. Some let you redraw instantly online; others need a form and a few days.
- Changes. A lender can limit or stop redraw, for example if you fall behind on repayments.
Which loans have redraw
Variable loans are much more likely to have redraw than fixed loans. Construction loans, bridging loans and some business loans often don't offer it. Using redraw doesn't affect your credit report.
What to compare
Start with the rate for your situation: the rate a lender offers depends on whether you'll live in the home or rent it out, how you repay, and the size of your deposit. The comparison above picks each lender's rate for your choices.
Then look past the rate.
- Fees: upfront fees, and annual package fees that often come with an offset account.
- Features: an offset account, redraw, extra repayments and the option to split the loan between fixed and variable.
- The comparison rate, which adds standard fees to the rate for an example loan of $150,000 over 25 years.
- Any cashback, but only after the rate and fees, since a higher rate can cost far more over the life of the loan.
Alternatives
- An offset account, which cuts interest while keeping your money in a separate account.
- A high interest savings account, if you want the money kept apart.
How to apply
Most people get pre-approval for a home loan with redraw before they start making offers, then the full approval once they've found a home.
- Get your documents together. Payslips, two years of tax returns if you're self-employed, bank statements showing your savings, and details of your debts and credit limits.
- Get pre-approval. It tells you how much you can borrow and shows sellers you're serious. It usually lasts three to six months.
- Find the home and sign the contract. The lender then values the property before it gives full approval.
- Settle. Your lender pays the seller, and your repayments start about a month later.