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Redraw – making your money work for you.

With some variable rate home loans, you can make extra repayments on top of your monthly or fortnightly required repayment amount. Any extra funds you pay into your home loan, can be withdrawn when needed. Those extra funds save you money too, as any extra repayments on your loan also lower how much interest you’re charged.

How it works

It operates much like a savings account, where you withdraw to spend and deposit to save. The added benefit is that any savings – extra repayments you make – help reduce your principal loan amount which means your interest charges are reduced too.

With a home loan redraw facility, you can redraw funds when you need them, or keep them in your home loan to pay off your principal loan faster. Generally, the amount available for redraw is the difference between the extra amount you’ve paid and the amount you were required to pay.

Depending on your lender, you may be able to withdraw funds from an ATM, transfer to another accessible account, or pay bills online. But it’s important you check with your lender about the cost of fees that may be charged using the redraw in this way, as well as the restrictions on minimum and maximum redraw amounts.

Benefits of a redraw

  1. Extra repayments reduce your interest
    Much like an offset account, making extra repayments into your redraw home loan account on top of your required repayment amount reduces the total interest you’re charged on your loan, and shortens the life of your loan.
  2. Money when you need it
    A redraw facility is a great way to put aside a little extra money each month for an emergency fund – while saving on interest charges at the same time. It means more flexibility with your mortgage, allowing you to spend and save as you need to.

Downsides of a redraw

While there are benefits to this type of home loan facility, it’s important you’re clear on what the downsides are too.

  1. Rules about redraw
    Lenders have different rules about accessing your redraw. Some stipulate a minimum or maximum redraw amount, or they may charge fees for withdrawals which can make it expensive.
  2. Not the same as an offset account
    While a redraw facility is similar to an offset account – whereby you put money into the account and your interest charges are reduced – the money in your offset account remains yours to spend or save as you choose, rather than being limited by the lender’s restrictions.

Get a home loan with a redraw

If you’re switching your home loan, you should consider if the new loan type has a redraw facility. We can help, so contact us today to find out more.

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