Why a redraw facility can save you in the long run

04th Oct, 2021 | Articles, First Home Buyer, Investor, Loan Features, Refinance

In this article:
Learn how you can pay of your home loan faster by using a redraw facility.

There are many home loan providers out there, but only one can offer you the best home loan suited to your circumstances. A redraw facility is a great home loan benefit that many home loans don’t offer. Let’s look at what this means for your savings and how it can help you save money in the long run.

A home loan redraw facility can give you numerous benefits. You have the ability to make extra payments on your principle and save money on interest thanks to this useful loan feature. You also get the added safety of knowing you can access these extra repayments should an unexpected or emergency expense rear its ugly head.

Making frequent overpayments to stay ahead of your minimum monthly repayments is a safe strategy to pay off your mortgage more quickly, and you’ll soon notice your home loan debt start to dive.

Redraw is a home loan feature well suited to owner-occupiers who are intent on paying down home loan debt quickly.

What are some benefits of Redraw?

– Redraw allows you to make extra repayments and save on interest.

– Redraw stops home loan debt from accumulating and saves you money in the long run.

This facility also offers tax advantages over topping up a normal savings account. Interest earned on a generic savings account may be subject to tax, but interest saved on your home loan is not! (Please note that any money you redraw back from your loan is not tax deductible).

For as long as you have additional money in your mortgage, you are secure in the knowledge that you have a safety net to fall back on during hard times, as well as financial stability to handle any future interest rate hikes.

Redraw is a home loan feature that’s ideal for owner-occupiers who want to pay down their home loan debt as soon as possible, without having to withdraw funds frequently.

Key facts about a redraw facility

  • It’s often found in variable rate home loan packages, but not common for fixed-rate or construction mortgages
  • They’re not a one size fits all option. Redraw facilities have various fees and conditions attached to them, which can also depend on the specific lender.
  • It gives you the freedom and flexibility to make more frequent deposits, either by a lump sum or increasing the regularity of your repayments.
  • Some redraw facilities limit the number or frequency of redraws you’re allowed.
  • Some redraw facilities incur fees with each withdrawal.
  • Most redraw facilities have a minimum withdrawal amount (e.g., $500).
  • Different lenders process withdrawals differently. It may take time to access funds from your redraw.

Redraw & offset: what is the difference?

An offset account is a savings or transaction account linked to your home loan that you use to pay off your obligations and daily expense costs.You don’t accrue interest on the money in your offset account; rather, the balance is offset against your mortgage amount.

Like redraw facilities, offset accounts will have fees, terms and conditions attached. Some are completely offset (100%) while others are only partially offset and may be conditional on a minimum account balance or withdrawal amount.

A redraw facility can be complicated and it is something you should definitely raise with a mortgage broker when comparing home loan offers. Our home loan expert can explain the subtleties of these loan features and help you understand whether they’re features suited to your situation.

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