During your home loan research, you may have come across a home loan that offers a redraw facility. It’s one of the less glamorous home loan features, however this option deserves a second look. Here’s why:
The redraw facility explained
If you have made additional repayments to reduce your variable rate home loan balance over the minimum scheduled repayments, then using a redraw facility, you can withdraw money up to the amount of those additional repayments. This facility allows you to pay extra to your home loan, to reduce your interest payments and hopefully pay your home loan off sooner, with the knowledge that should you need those additional funds for future expenses they are available to you.
The redraw facility is a common feature of many home loans. It’s not available, though, on construction loans and only some lenders allow it for fixed rate loans.
You can redraw funds if, and when, they are needed, or you can keep the funds in your home loan to pay off your principal faster. The amount available for redraw is the difference between what you have paid and how much you were required to pay, less one month’s scheduled repayment.
You can check your loan account online to view your available redraw amount at any time. Alternatively, you can call your broker and ask them to check for you.
You can withdraw your funds from certain ATMs depending on your lender, however this may attract certain fees and come with restrictions on minimum amounts.
What happens after using redraw?
After you redraw money from your home loan, you continue to make your regular repayments as normal. However, be aware the interest component of the repayments you make will increase since you’re now paying interest on a higher loan principal amount.
What are the benefits?
Like an offset account, a redraw facility can help reduce the total interest paid on your loan and shorten the life of the loan. And, of course, when you need some cash it’s easily accessible.
Depending on your lender, additional payments can be made at no extra cost and redraw funds can be accessed at any time.
When comparing loans one of our expert brokers can help you choose the option that best suits your financial needs. Book a free consult by calling (08) 9367 4222 or fill in the contact form on this page.