What happens to my redraw when I refinance?

A redraw facility is a home loan feature that could help you better manage your home loan and save on interest charges. This feature is linked to the extra payments you make into your home loan.

Some lenders allow you to make extra repayments on top of your minimum home loan repayments, and a redraw facility allows you to access these funds when you need them for other purposes.  

When you pay extra towards your loan, the additional funds are credited to your loan account to reduce the principal amount and, therefore, will lower the interest you pay. With a redraw facility, you can access the additional payments you made towards your loan when you need to, subject to any terms and conditions imposed by the lender. Some lenders may refer to these extra payments in your loan account as your redraw fund or balance. 

It's generally not possible to withdraw your redraw fund in its entirety. Some lenders may allow you to remove your entire redraw balance minus that month’s scheduled repayment. While others may cap the maximum amount of money you can redraw at once. Therefore it's essential to read the terms and conditions of the loan before opting for a redraw facility.

Most lenders allow you to keep your redraw facility when you refinance with them. When you refinance a loan, you're essentially closing your existing loan and taking out a new loan with different terms. Therefore, the redraw facility on your original loan will be closed, and the additional funds will get transferred to your new home loan product. 

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. The fees and charges associated with any redraw facility may also vary between lenders. You’ll need to check this before refinancing. 

If you're concerned about losing access to your redraw fund, consider redrawing the amount before refinancing. But you’ll have to keep in mind any withdrawal limits or fees that may apply to the transaction. It could also help to connect with your lender to understand how they’ll handle the redraw balance if you decide to refinance.  

It’s worth noting that lenders don’t usually keep your redraw balance. Your existing lender may, however, want to adjust any outstanding repayments or charges based on your redraw funds before transferring them to the new lender. Most mortgage contracts give lenders the option to cancel your redraw facility. However, a lender won’t typically do this unless you miss your repayments or the loan is in arrears.