Real Estate

Home loan redraw facility: all the ins and outs

Home loan redraw facility: all the ins and outs
You've heard of them and they sound interesting but what exactly is a home loan redraw facility? And can they help you in your mortgage journey? We explore the ins and outs of this great concept.

What is a home loan redraw facility?

We've talked about home loan redraw facilities recently but it never hurts to explore them further as they can be very useful on the journey to pay off your mortgage. How? As the same suggests, redraw facilities allow home loaners to take back any extra repayments from their mortgage - or at least, take a short repayment holiday - if and when necessary. Perhaps you've hit a major bump in your life or finances - or both - and need some extra money in your hip pocket. With a redraw facility, extra repayments can be returned to your pocket to help you with such crises. Of course, you can only do this if you've made extra repayments on your mortgage; but then, a smart mortgagor should be doing this either way.
Home loan redraw facilities - what are they?

How do they work?

In effect, a home loan redraw facility gives you a second chance if your finances take a turn for the worse - which they can, no matter how hard we work to ensure they won't. Redraw facilities are also very hard workers, happy to sit quietly in your bank account and do amazing work in the background of your finances. How? All those extra mortgage repayments in your redraw facility are also reducing your home loan interest and the overall life of your loan.

How can I obtain a redraw facility?

The majority of fixed-rate home loans don't offer redraw facilities but many variable home loans will. So even though variable loans may not be appealing right now with interest rates rising, redraw facilities can decrease your mortgage by thousands of dollars. If you'd prefer to stay with your fixed-rate loan, it's still worthwhile to ask your lender about redraw facilities.

How can I redraw money from my home loan account?

All lenders have different ways and means in which to utilise the redraw facility. But generally, it's quite easy to utilise the redraw facility. We checked the Big 4 Banks' websites and all of them noted you can redraw on your mortgage either online or via their apps, phone lines or visiting a branch. Either way, you'll essentially be transferring any extra repayments from your home loan to your relevant savings account. This cash transfer may be available overnight - or not.

How much money can I redraw from my home loan account?

Different lenders may have minimum or maximum redraw figures but the general rule of thumb is you can access all extra repayments, bar one month's repayment figure. Some lenders - such as Commonwealth Bank - also allow mortgagors to regularly check their redraw balance online. Bear in mind you may be charged a fee for utilising this facility; however, we actually like this last point as it's a good way not to be tempted to draw on your redraw too often.

What are the pros and cons of a home loan redraw facility?

So, let's explore the benefits and downsides to redraw facilities.

Benefits of a redraw facility

  • Cash in hand when emergencies strike
  • Reduced interest and shorter mortgage life span
  • Smart way to keep ahead of the mortgage game
  • Generally easy to transfer funds (although this could be a downside)

    Downsides of a redraw facility

  • Fixed-rate loans generally don't feature redraw facilities
  • Fees may be charged when utilising your redraw facility
  • Lenders may limit the number and figure of redraws allowed (although this could be a long-term bonus)

    We’re here to help

    Whatever mortgage road you wish to take, we'd love to help you travel it! We can find you the best home loans from more than 40 of Australia’s biggest banks and specialist lenders and we can also help you refinance your loan. So give us a call today at Lending Loop.

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