It’s one of the less glamorous home loan features, but the redraw facility deserves a second look. Here’s why:
A redraw facility lets you make additional repayments to reduce your variable rate home loan balance and save on interest. If you pay more than your minimum scheduled repayments, then you’ll have money available to redraw from your home loan.
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 home loan customer care team and ask them to check for you.
You can withdraw your funds from certain ATMs depending on your lending provider, but 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. There are advantages for investors in using an offset versus a redraw but that is outside the scope of this article (get in touch if you are unsure). Depending on your lender, additional payments can be made at no extra cost and redraw funds can be accessed at any time.
How can my mortgage broker help?
Mortgage brokers help borrowers apply for and secure appropriate home loans every day, and many will have a redraw account. They will usually compare a range of competitive products, and look at loan features like redraw and offset accounts so borrowers can make informed decisions that are most suited to their circumstances.
Hitting the finish line..
Borrowers who are serious about winning the mortgage game need to be aware that having a redraw account could offer them an edge in the long term. Savings from the use of redraw can be huge. For more information contact your Broker today.
Douglas Piening is a Mortgage and Finance Broker with Piening Financial Solutions and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs.
You can contact Doug at firstname.lastname@example.org or (m) 0408 671 524.
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This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.