How does a redraw facility work?

What is a redraw facility?

A redraw facility allows you to access the extra payments you’ve made on your home loan. If you make additional repayments or pay more than the minimum payment amount, this will go towards your available redraw amount. Having a redraw facility on your home loan means you can then redraw your additional repayments if you need access to that money for any reason.

Redraw vs offset account

If you’ve been doing your home loan research, a redraw facility probably sounds a lot like an offset account to you. While both can help you reduce the amount of interest that you pay on your home loan, they each work slightly differently.

Offset account

• Is a separate account that is attached to your home loan
• Can be used like a regular transaction account
• Comes with a debit card

Redraw facility

• Is a feature that is attached to your home loan
• Allows you to redraw extra payments that you have made
• Has no debit card, and money is typically moved by requesting a transfer of funds (like an EFT)

Both offset accounts and redraw facilities have their own unique benefits. If you want to have regular and instant access to your extra funds but like the sound of paying less interest, an offset account could be what you’re looking for. You could, for example, use it like an everyday savings and expense account by having all or a portion of your salary paid into the account, and use the debit facility to pay for everyday expenses.

And if you want to pay off your home loan faster with extra payments but don’t need to access the funds quite as frequently (i.e. to cover yourself in case of an emergency), and pay less interest on the overall amount of your loan, a redraw facility could be for you. It’s always a good idea to seek professional financial advice to make sure you get the features that best suit your needs.

The benefits

Redraw facilities can be a great way to benefit from making extra payments on your home loan while also having access to that money if you need it. Putting extra money into your home loan as opposed to a savings account, helps you to pay off your loan quicker and pay less interest overall, earning you more than you would in a savings account and without the tax (especially in the current economic climate).

Knowing that you can redraw the money if you need it is a great incentive to help you make those extra repayments and shave years off your home loan.

The drawbacks

One limitation to a redraw facility is that in order to use it, you must first make additional payments on your home loan. So if you’ve only been paying the required amount, you won’t have anything to redraw. There can also be some fees and restrictions on your redraw facility that you should check before choosing to have one on your home loan (luckily, Tic:Toc’s redraw facility costs you nothing). Some lenders may charge you fees for your redraw facility, this could be in the form of a flat upfront fee or a fee per redraw, depending on the mechanism and or the amount redrawn. There may also be limitations to the amount of redraws you can do, or you might have a minimum or maximum amount you can redraw which could also limit your options. The only limitations on Tic:Toc’s redraw facility is that you need to be one month ahead on your repayments, and your minimum redraw amount is $1 per transaction.

The other drawback to a redraw facility is that you may not have instant access to the redraw funds. When you transfer your redraw amount out of your home loan and into another account it can take few business days for the money to appear in your account, so you’ll need to make the redraw a few days before you need the money to ensure you have it ready. With Tic:Toc’s redraw facility, if you transfer the money to your offset account you can access your funds immediately. On the other hand, not having immediate access could be helpful in getting you closer to a savings goal you may have in mind. It’s really about what works best for you and your situation.

How to use Tic:Toc’s redraw facility

To use the redraw facility on your Tic:Toc home loan you just need to select your home loan as the ‘From account’ when transferring funds. Then you can transfer the redraw funds into your offset account (if you have one) or transfer them to another account. Your funds will be instantly available if you transfer them to your offset account, and should be available in up to two business days for other accounts.

If there is more than one person on your home loan, you’ll both need to authorise the redraw. If you’d prefer to be able to redraw separately, please give us a call on 08 7109 9010.

For more information on using the Tic:Toc redraw facility you can also check out our FAQ How do I redraw on my loan?

Things to know about Tic:Toc’s redraw facility

1. Redrawing on your loan won’t increase your repayments or extend the term of your home loan. You’re just withdrawing the extra payments you’ve made.
2. You need to be one month ahead in your repayments (you can redraw any additional funds paid beyond the current month).
3. The minimum redraw amount is $1 per transaction.