Understanding What Happens to Redraw When Loan is Paid Off

Understanding What Happens to Redraw When Loan is Paid Off

If you need money in an emergency or are looking for funds for renovation or a holiday, then a redraw facility can be a good option. However, what happens to redraw when loan is paid off? In today’s blog, we’ll discuss the redraw facility and where the redraw goes after paying off the home loan

What is Redraw Facility?

A redraw facility enables you to receive additional repayments made towards your home loan later, if and when you require them. These additional repayments will be separately accumulated to your normal repayments. For instance, your monthly mortgage repayments are $3,000 and in one month you made a repayment of $5,000. Now, you could withdraw an additional $2,000 when you need.

Some homeowners make use of the redraw option to cover unforeseen costs, special occasions, renovations, or weddings. In addition to this, the redraw facility allows you to pay your principal faster and are available with variable-rate home loans.

What Happens to the Redraw When a Loan is Paid Off?

The redraw facility will close and the money won’t be available after your mortgage is paid off. Even if you have $20,000 in your redraw account, that money still goes towards paying off your loan; as a result, after the loan is repaid, your redraw option is no longer available because it was used to pay off the mortgage. Lenders will typically get in touch with you to ask you to cancel your loan or remove some money from your redraw facility when your loan balance reaches $0 owing before the end of your loan term.

What Happens to Redraw When Refinance?

When you refinance, your redraw balance is transferred to your new home loan. It means that you can still access your funds when you need them, but here is a condition that you may have to pay higher interest rates on the money that you’ve drawn down.

Most lenders will let you keep your redraw facility, when you refinance with those lenders. The additional repayments you made will still be available to you, which is helpful if you need some extra money for things like home improvements or unanticipated costs.

Can You Use Your Redraw to Pay Your Mortgage?

No matter how much money is available in your redraw, any amount will minimise the balance you owe on your home loan. You can save more on interest and pay your home loan sooner.

What are the Benefits of Redraw Facility?

When you decide to set up a redraw facility, you will have various benefits from it. These include:

  • Save on interest

By making additional repayments, you can reduce interest payable on your home loan and you can also pay your home loan faster. However, don’t forget that it is possible only if you don’t withdraw.

  • Extra cash on hand

Being able to withdraw extra repayments can be useful in emergency situations or when you require additional funds to pay for home upgrades.

  • Allows you to take a break from repayment

If you accumulate enough extra payments, you may be able to skip a scheduled mortgage payment and apply the extra money to your monthly repayments instead. This allows homeowners some breathing room, which can be very advantageous.

Can the Bank Take Your Redraw Facility?

In Australia, banks are prohibited from withdrawing funds without your permission. Redraws are seen as being included in your loan balance. However, there are rare situations where a bank could ask you to pay back your redraw, like if you stop making loan payments or go into default. It is preferable to discuss with your bank directly to go over your alternatives if you are worried that they could refuse your request to redraw money.

What happens to the redraw when the home loan is paid off? Most lenders will revoke the redraw facility in this situation. Some people will still allow redraws, although they might charge a fee for the service. Prior to signing your loan agreement, be sure to carefully read its terms and conditions.


Now, you know what would happen once your loan is paid off. Furthermore, you can get more information on the redraw facility by contacting Home Star Homeloans where you’ll be guided on what you need to know about the redraw facility.

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