What is a Redraw Facility?
A redraw facility is a home loan feature attached to your mortgage that gives you the opportunity to make extra repayments on your home loan. This helps reduce interest costs. You then have the option to 'redraw' the extra funds.
How is a redraw facility different to an offset account?
A redraw facility acts in a similar way to an offset account by reducing the loan balance used to calculate the amount of interest payable, however, there are significant differences. A redraw facility may be imposed with limitation to the withdrawal amount and the number of redraws allowed per year. You may also be charged a fee for each redraw and can experience a wait for the funds to come through.
Compared to an offset account this is much less flexible and accessible, as an offset is generally set up as an everyday transaction account. Although, keep in mind that the convenience of an offset account may come at the costs of higher interest rates or additional account keeping fees.
Generally speaking, a redraw facility is less suited for investment home loans, because of its potential tax implications. However, it's worth doing the sums to see which one works better for you. Or better still, let a home loan expert crunch the numbers for you.