A redraw facility lets you withdraw extra repayments you've made on your home loan.
Most variable rate home loans in Australia include a redraw facility at no extra cost, and it's one of the features that borrowers in Frankston ask about most often. The appeal is clear: you can make extra repayments to reduce your interest bill, then access that money if you need it. But redraw facilities come with restrictions that can catch you off guard if you're not prepared.
How a Redraw Facility Works on a Variable Rate Loan
When you make repayments above your minimum on a variable rate home loan, those extra funds become available for redraw. The lender holds the money in your loan account, reducing your loan balance and the interest you're charged. You can typically request a redraw online, over the phone, or through your lender's mobile app. Some lenders process redraw requests instantly, while others take one to three business days. Most lenders don't charge a redraw fee on standard variable rate products, though some will charge between $20 and $50 per transaction depending on how the request is processed.
In our experience, borrowers who live in the Frankston area often build up redraw balances of $30,000 to $60,000 over the first five to seven years of their loan, particularly if they've kept the same loan since purchasing in a lower price environment and have since received pay increases or reduced other expenses.
Redraw on Fixed Rate Home Loans: Why It's Different
Most fixed rate home loans either don't offer redraw at all, or they restrict how much you can withdraw. Lenders typically allow you to make up to $10,000 or $20,000 in extra repayments during a fixed term without penalty, but those funds are often locked until the fixed period ends. Some lenders will let you redraw during a fixed term but charge a fee per transaction, usually between $50 and $150. If you think you'll need regular access to extra funds, a variable rate loan or a split loan structure may be more suitable than locking in a fixed rate for several years.
Consider a borrower who fixes their rate for five years and makes an extra $40,000 in repayments, expecting to use that money for a kitchen renovation. If the loan terms don't allow redraw during the fixed period, that $40,000 stays in the loan until the fixed term expires, and the borrower may need to find another source of funds for the renovation or wait years to access their own money.
Why Lenders Can Reduce Your Available Redraw Balance
Your available redraw balance is not the same as the total extra repayments you've made. Lenders recalculate your redraw availability each time they reassess your loan balance, and they can reduce the amount available if doing so is necessary to keep your loan on track to be repaid by the end of the loan term. This typically happens if interest rates rise or if you've switched from principal and interest to interest only repayments. The lender is required to ensure your loan remains serviceable under the original term, and reducing redraw is one way they manage that.
A situation we regularly see involves borrowers who built up a redraw balance over several years, then switched to interest only repayments when they converted their home to an investment property. The lender reduces the available redraw to ensure the loan can still be repaid within 30 years, even though the borrower made those extra repayments voluntarily.
Redraw and Borrowing Capacity: What Happens When You Apply for a New Loan
When you apply for a new home loan or seek pre-approval, lenders assess your borrowing capacity based on your current debts. If you have a redraw facility with available funds, the lender will usually treat your loan balance as the full amount you owe, minus the redraw balance, but only if that redraw balance is genuinely available for you to use toward a deposit or to reduce debt before settlement. If you've already spent the redraw funds or committed them to another purpose, the lender will assess your application based on the higher loan balance. Redraw balances don't increase your borrowing capacity in the same way that an offset account does, because redraw is not held in a separate transaction account and can't be as readily verified or controlled by the new lender.
For buyers looking to upgrade within the Frankston, Mornington Peninsula, or Seaford areas, this distinction matters. The current median for an established house in Frankston sits within a range that makes it accessible for first home buyers using schemes like the Australian Government 5% Deposit Scheme, but it also means that upgraders need to show strong borrowing capacity to move into Mount Eliza or Mornington. If you're relying on redraw funds as part of your deposit and the lender can't verify those funds are genuinely available, your application may be delayed or declined.
Redraw vs Offset: Which One Gives You More Control
An offset account sits separately from your loan and reduces the interest charged on your home loan balance by the amount held in the offset. You have full access to offset funds at any time without needing lender approval, and those funds remain visible in your own transaction account. Redraw, by contrast, requires you to request access from your lender, and the lender retains the discretion to reassess your available balance. For owner-occupied home loans, both offset and redraw provide similar interest savings, but offset gives you more control and transparency. Most lenders charge a monthly or annual fee for an offset account, typically between $10 and $20 per month, while redraw is usually included at no extra cost on variable rate loans.
If you're buying an investment property and plan to claim interest deductions, an offset account is usually the right choice over redraw. Redraw can affect the deductibility of interest on your loan if you withdraw funds and use them for a non-deductible purpose, such as a holiday or paying down a car loan. That issue doesn't arise with an offset because the funds in the offset were never loan repayments in the first place.
What Happens to Your Redraw When You Refinance
When you refinance your home loan to a new lender, any redraw balance you've built up is lost. The new lender pays out your old loan in full, and you start with a new loan that reflects the payout amount at that time. If you had $50,000 available in redraw, that amount effectively becomes part of your new loan balance, and you no longer have access to it unless you negotiate a lower loan amount at refinance. Some borrowers refinance specifically to access their redraw as cash, either to fund renovations or to use as a deposit on an investment property. In that case, you'd ask the new lender to increase the loan amount above the payout figure and provide those additional funds to you at settlement. That approach works, but it increases your loan balance and your ongoing repayments, and it may reduce the amount you can borrow in future if your borrowing capacity is already stretched.
If you're planning to refinance and have built up a substantial redraw balance, it's worth speaking with your current lender about whether you can access those funds before refinancing, rather than rolling them into a higher loan balance with a new lender. Every situation is different, and the right approach depends on your current loan structure, your plans for the funds, and your overall borrowing capacity.
Call one of our team or book an appointment at a time that works for you. We'll review your current loan, explain how your redraw facility works under your specific loan terms, and help you decide whether refinancing, restructuring, or keeping your current loan makes the most sense for your situation.
Frequently Asked Questions
Can I access my redraw balance at any time?
Most lenders allow you to request a redraw online or by phone, and the funds are usually available within one to three business days. However, lenders can reduce your available redraw balance if needed to keep your loan on track for repayment within the original term.
Does redraw work the same way on a fixed rate home loan?
Most fixed rate loans either don't offer redraw or restrict access until the fixed period ends. Some lenders allow limited extra repayments during a fixed term but charge a fee to redraw those funds.
What happens to my redraw balance if I refinance?
When you refinance to a new lender, your old loan is paid out in full and any redraw balance is lost. You would need to negotiate a higher loan amount with the new lender if you want to access those funds as cash at settlement.
Is an offset account the same as a redraw facility?
An offset account sits separately from your loan and gives you full access to your funds at any time without lender approval. Redraw requires you to request access from your lender, and the available balance can be reduced by the lender if needed.
Does a redraw balance increase my borrowing capacity?
Lenders may take your redraw balance into account when assessing a new loan application, but only if the funds are genuinely available to reduce your loan balance or contribute to a deposit. Redraw doesn't increase borrowing capacity in the same way an offset account does.
