How do redraw facilities work?

A redraw facility is a feature offered by many home loan lenders that allows borrowers to access extra repayments they have made on their mortgage. This can be a useful tool for managing finances and ensuring flexibility in your loan repayments. Let’s dive into how redraw facilities work and their benefits.

What is a Redraw Facility?

A redraw facility is an option attached to a home loan that lets you withdraw any additional payments you have made over and above your required minimum repayments. Essentially, it gives you access to the extra funds you have paid into your mortgage, which can be useful for unexpected expenses or financial emergencies.

How Does It Work?

Making Extra Repayments: When you make extra repayments on your home loan, these payments reduce the principal amount of your loan. This can help you pay off your mortgage faster and reduce the amount of interest you pay over the life of the loan.

Accessing Extra Funds: The extra repayments you make are stored in your redraw facility. You can access these funds when needed, usually through your lender’s online banking platform, by visiting a branch, or by contacting your lender directly.

Limits and Fees: Some lenders may impose limits on the number of redraws you can make or the minimum amount you can withdraw. Additionally, there may be fees associated with using the redraw facility, so it’s important to check the terms and conditions with your lender.

Benefits of a Redraw Facility

Flexibility: A redraw facility provides financial flexibility, allowing you to access extra funds when needed without having to apply for a separate loan or use a credit card.

Interest Savings: By making extra repayments, you reduce the principal amount of your loan, which can lead to significant interest savings over time.

Emergency Funds: Having access to a redraw facility can provide peace of mind, knowing that you have funds available for unexpected expenses or emergencies.

Financial Management: It allows you to manage your finances more effectively by giving you the option to pay down your mortgage faster while still having access to your extra repayments if needed.

Things to Consider

Terms and Conditions: Always review the terms and conditions of your redraw facility. Some lenders may have restrictions or fees that could impact your ability to access your funds.

Discipline: While having access to extra funds can be beneficial, it’s important to use the redraw facility wisely. Regularly withdrawing funds can negate the benefits of making extra repayments.

Alternative Options: Consider other options such as an offset account, which can also help reduce the interest on your home loan while providing easy access to your funds.

Conclusion

A redraw facility can be a valuable feature of your home loan, offering flexibility and potential interest savings. By understanding how it works and using it wisely, you can better manage your mortgage and overall financial health. Always consult with your lender to understand the specific details and benefits of you redraw facility.

If you have any questions or need further clarification, feel free to ask!