What Happens to My Redraw When I Refinance? (2024)

FAQs

What Happens to My Redraw When I Refinance? ›

In the most simplistic explanation, the balance stored in your redraw facility is transferred to your new loan when you refinance. You will still have access to the funds you have accumulated in this facility, but now you might have to pay a slightly higher interest rate on the amount that you have drawn down on.

If you refinance with the same lender, they'll typically allow you to continue to hold these funds as redraw, meaning they're still accessible for you to withdraw. If you refinance to a new lender, they'll still honour your redraw amount but may have other restrictions or interest they'll charge on it.

For weekly and fortnightly direct debit payers, only funds over and above the minimum required repayments will be available. The money in your redraw account may reduce over the life of your loan so that, by the end of your agreed loan term, both your loan balance and the available redraw will be zero.

Why does my available redraw fluctuate? Your available redraw is the difference between your loan balance and scheduled limit. As interest is calculated daily and charged to your loan at the end of each month, your available redraw will sometimes appear lower until your next repayment is made.

Most mortgage contracts allow lenders to cancel features such as redraw facilities. However, the money in your redraw facility is your lender's, not yours. So, they could restrict your access to it, change the balance or alter the conditions based on the conditions stipulated in the contract.

A redraw facility and an offset account both have their merits, so it's not really a case of better, but more what suits your financial circ*mstances. It also depends on what type of loan you have – offset, for example, is not available on all home loans, whereas redraw is (provided you activate it).

Additional repayments

To be able to use a redraw facility, you need to make additional payments on top of your minimum loan repayment schedule first. This includes one off lump sum repayments or, say, regularly paying $50 more than the required minimum repayment.

Once your offset deposit account/s are opened, you can choose to transfer some or all your redraw to your offset deposit account/s if you wish to.

A redraw facility offers an effective way to save as it reduces the principal and interest you'll be paying in the long run. The interest rate on your mortgage is bound to be much higher than any interest earnings you could potentially make in a savings account.

Not available on a fixed rate loan until the end of the fixed rate period (i.e. when the rate becomes variable). Not available where any account held by any borrowers on the loan is overdue. Redraw isn't available for business purposes.

What happens if I pay an extra $2000 a month on my mortgage? ›

The additional amount will reduce the principal on your mortgage, as well as the total amount of interest you will pay, and the number of payments.

A home loan redraw facility can get you cash, fast. No obligation. It wont affect your credit score.

What happens to my offset accounts & other transaction accounts at the outgoing lender? – If you had an account linked in an offset arrangement, that account will remain active; however, it will be “downgraded” to a standard banking transaction account, receiving no interest offset benefit.

Check this with the lender or your mortgage broker if you're unsure. In the case of redraw, you can't 'lose' the money you have made in extra repayments. But there is a small risk it could be fully absorbed into your loan (e.g. if you stopped repaying your loan), meaning you would no longer be able to access the money.

A bank can temporarily suspend withdrawals to stop a run; this is called suspension of convertibility.

The portion of the loan that isn't used to buy the house, also called “future advances,” is available to the borrower after the real estate transaction is complete. The unused portion of the mortgage can only be used to fund home improvements. Borrowers are not charged interest on the unused money until they access it.

The portion of the loan that isn't used to buy the house, also called “future advances,” is available to the borrower after the real estate transaction is complete. The unused portion of the mortgage can only be used to fund home improvements. Borrowers are not charged interest on the unused money until they access it.

Basically – nothing happens to offset money when refinancing. An offset account is a savings account that is linked to the loan, but it is not part of the loan. When the loan that the offset is linked to is refinanced the cash in the offset remains in that offset account – which now becomes just a savings account.

With a redraw facility, you can only access the extra funds by transferring them to a transaction account that will let you withdraw them or use them to make payments. An offset account is like an everyday transaction account, allowing you to withdraw and pay for things without having to transfer funds.