Cash out refinance vs redraw vs a line of credit

If you have paid more than the minimum, the surplus sits in redraw and most variable loans let you take it back online. There is no assessment because it is your money. The catch is tax: redrawing from an investment loan for personal purposes, or from a home loan for investment purposes, mixes deductible and non-deductible debt in one account and the ATO requires apportionment. Redraw is best for the purpose the loan was originally for.

New money, so the lender assesses you again, values the property and asks the purpose. It is the right tool for a defined lump sum: an investment deposit, a business injection, a renovation with a fixed quote, debt consolidation. Set it up as a separate split so the purpose and the interest stay identifiable. Costs are the refinance fees and, if the LVR ends above 80 per cent, LMI.

An approved limit secured on the property, drawn as needed and repaid at your discretion, usually interest only on the drawn balance. It suits staged spending such as a renovation paid in progress claims, a deposit that is not yet needed, or an investor who wants funds ready for the next purchase. Rates are typically higher than a standard variable loan and some lenders review the facility annually. Discipline matters, because an undrawn limit is a temptation and interest only revolving debt does not reduce.

Money you have already paid ahead, for the same purpose as the loan: redraw. A known amount for a new purpose: cash out as a separate split. Uncertain or staged amounts, or a standing facility for investing: line of credit, or a cash out split parked in an offset, which gives most of the flexibility at a standard rate.