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Author: Ryan Morgan-Jones

How does a home loan redraw work?

Want to find out how making extra repayments could affect your home loan? See for yourself with our handy, easy-to-use repayments calculator.
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Once you’ve settled into life as a home owner, making regular mortgage repayments, you may find that from time to time you’re in a position to raise your repayment amount, or even make one-off additional repayments. This is great – it means that you’re putting yourself ahead on your loan, meaning you pay less interest in the long run, paying off your home sooner.

However – none of us live in a vacuum, and from time to time, life will throw us unexpected challenges which threaten to put a dent in us financially. It’s times like this that the ability to redraw on your home loan come in handy.

If you’ve been putting extra money towards your home loan, a redraw facility lets you take back some of those funds to use however you please. What’s more – for Greater Bank customers, redraw is easy, free and can be done as many times as you like via Online Banking and our App.

How does a redraw facility work?

Home Loan redraw works like this – imagine you’re a customer like Alex in our video below and you need access to funds for a renovation, or some other purpose.

  • Your minimum monthly repayment on your loan is $2,000
  • For six months, you’ve been making monthly repayments of $2,250 – adding an additional $1,500 to your loan. (6 X $250)
  • This extra $1,500 is available for you to redraw from your home loan whenever you need it

Find out more about Alex's story here.

How to redraw money from your home loan

While different financial institutions will have their own rules around the frequency, maximum amount and cost of home loan redraws, it’s usually pretty easy to redraw on any eligible home loan through online banking, over the phone or in a branch.

Before redrawing on your home loan, be sure to check your lender’s stance on the following:

  • Will you be charged a fee for having a redraw facility?
  • Will you be charged a fee per redraw?
  • Is there a limit on the number of redraws, or free redraws per year?
  • Is there a minimum or maximum redraw amount

Greater Bank customers are able to redraw on their Home Loans around the clock, with no minimum/maximum amount, free of charge, as many times as you like. After all, it’s your money.

Lower your mortgage payments

By getting into the habit of making higher or additional repayments on your home loan, you’re effectively able to reduce the amount of interest you’re paying each month.

The monthly amount you are charged in interest on your home loan is calculated against your entire home loan balance. This means:

  • If your Home Loan balance is $500,000 and your home loan interest rate is 4.09% p.a.
  • And you’re $2,500 ahead on your home loan repayments
  • The interest you are charged is based on the lower balance of $495,000

Used the right way, a redraw facility is a cheap, but really clever way to build up your home equity, minimise the interest you pay on your home loan while ensuring you have access to excess/emergency funds when needed

Redraw VS Savings Accounts

Perhaps you’re wondering why you’d make extra/additional repayments on your home loan over putting your excess funds into a high interest savings account?

Firstly, depending on where you bank, generally the money you’ll save in interest on your home loan by making extra/additional repayments will outweigh the money you would have earned in interest if you put the same amount into savings.

Secondly, even if you are able to secure a hot-rate on a savings account and earn more than if you’d made extra/additional home loan repayments, you may have to pay interest on this at tax time, as it will be considered earnings.