Redraw facility

What is redraw?

To understand a redraw facility, you need to first know the difference between minimum repayments and additional payments. When you get your loan contract, the bank sets out a home loan repayment amount for you to pay every month, fortnight or week. This amount is the minimum required amount that you need to pay each cycle to pay off your home loan by the end of the loan term.

Additional or advanced payments, is anything you pay towards your loan on top of the minimum repayment amount. For example, if your repayments are $4,500 each month, but instead you pay $5,000 each month, the $500 becomes an additional payment.

Where do the extra repayments go?

Redraw! All the additional payments you make on top of the set minimum loan repayments sit in what is called a redraw facility. The redraw facility shows the total additional payments you have made on your loan.

When the loan interest is calculated, the money you have in redraw reduces the overall balance of the loan that the interest is calculated on. For example, if your home loan balance (without redraw) is $500,000 but you have $50,000 in redraw, the interest you are charged will be based on an outstanding balance of $450,000 rather than $500,000.