Redraw Facility
A loan feature that lets a borrower withdraw extra repayments they have made above the scheduled minimum.
In detail
When a borrower pays more than the minimum repayment, the surplus reduces the loan balance. A redraw facility lets the borrower pull some of those extra repayments back out later. Unlike an offset account, the funds are held against the loan itself rather than in a separate transaction account.
Redraw has important tax implications for investors. Money redrawn from an investment loan for personal use can contaminate the loan purpose and jeopardise interest deductibility on that portion. For owner occupier borrowers the feature is simpler and works as a flexible savings buffer without the administrative overhead of an offset account.
Why it matters for brokers
Redraw is often a free alternative to offset on basic loan products. Brokers need to explain the differences clearly so clients choose the structure that best matches their savings behaviour and whether the property is owner occupied or investment.
Example in practice
A couple takes a basic variable loan with a free redraw facility to avoid the $395 annual package fee on an offset product. They make $300 a month of extra repayments and build up $14,000 in redraw over four years, which they pull out to help fund a kitchen renovation.
Related terms
Offset Account
A transaction account linked to a home loan where the balance reduces the loan principal used to calculate daily interest.
Variable Rate Loan
A home loan where the interest rate moves up or down over time in response to market conditions and lender pricing decisions.
Principal and Interest (P&I)
A loan repayment structure where each instalment reduces both the loan balance and the accrued interest.
Interest Only Loan
A loan where the borrower pays only the interest charge for a set period, leaving the principal balance unchanged.
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