As a prospective homeowner, you may have heard of people accessing a redraw facility on their home loan. But what is a redraw on a home loan? And is it something that you should consider taking advantage of? We’ve compiled a guide on redraw facilities so that you can consider if it is a financial tool you’d like to utilise.
What does redraw facility mean?
The term “redraw facility” refers to a home loan feature that enables borrowers to re-access any additional payments they’ve made on their mortgage. For example, if you paid an additional $200 per month on top of your monthly mortgage repayments and you have a redraw facility on your home loan, you would be able to access that additional amount. This provides mortgage holders with a bit of a safety net, in case unexpected costs arise that they urgently need funds for.
How do I redraw on my home loan?
If you have a redraw facility as a feature of your home loan, any extra payments you make on top of your monthly repayments will be credited to your redraw facility. If you then need funds for an emergency, or unexpected expense, you can redraw an amount of your choosing from the balance of your redraw facility. The redraw facility generally shows as ‘Available funds’ in your home loan. It’s important to note though, that your normal monthly repayment will show as available funds too if you make it prior to it being due.
Benefits of redrawing on your home loan
- Flexibility:
The freedom to access extra funds that you’ve contributed to your mortgage can be a very attractive benefit for homeowners. - Lower interest rates:
Since you’re paying more off your home loan, you are reducing the principal amount and the interest paid over the life of the loan. - Less debt:
By using funds from your redraw facility instead of taking out another loan, you are reducing your debt burden.
Drawbacks of redraw facilities
- Fees:
Access to a redraw facility can cost you, and in addition to fees some lenders will have strict conditions associated with holding a redraw facility. - Unstable loan length:
If you are contributing extra funds to your mortgage, you will be shortening the life of your loan. But if you then decide to access a large amount of your redraw facility, you are of course adding that time back into the life of your loan.
A redraw facility can be a great safety net for homeowners, in the case of unexpected expenses or an emergency that requires immediate funds. However, it is best to seek professional advice on whether a redraw facility is right for you and your situation. Book an appointment with our expert team or call 131 BORRO.
