What is redraw and how does it work
A redraw facility, while a common home loan feature is not always available on all loan products and is at the discretion of the lender and the type of product chosen. The amount available for redraw is worked out based on the difference between what you have actually paid off of the loan and how much you are actually required to have paid off the loan to the respective date less one month’s scheduled repayment.
If you have a home loan and it is equipped with a redraw facility option this will allow you to make additional repayments on your home loan and reduce your variable rate portion of the home loan balance. If you pay more than the minimum amount onto your home loan then this will allow you to have access to available funds to be able to redraw from your home loan, however if you decide not to touch the funds available this will save you on the amount of interest being charged and therefore pay down the overall principal of your home loan at a rapid rate.
How to see the available funds
If you have an internet banking account set up with your financial institution whether it be on your desktop computer or mobile device via an app, you will be able to check the amount of funds available in redraw at any given time. If you don’t have internet banking set up you can go into your local bank branch or call up the customer care team and they will be able to give you a run-down of your accounts, balances and how much redraw funds are available to you at the present time and assist with any other question you may have regarding general banking enquiries. If you have a question specific to your home loan structure or product it is best to talk to your mortgage broker about this.
How to access the available funds
You can access and withdraw available redraw funds from specific ATM’s depending on your lender, although this withdrawal method is likely to attract a fee outlined by the lender, however if you have internet banking you will be able to transfer the desired amount of funds directly into your transactional account and draw the funds as needed from your nearest ATM.
After you access available funds from the redraw facility on your home loan, you will still be required to make the regular set payments as per normal whether you are currently paying the minimum amount or paying an extra amount. You will need to keep in mind that the interest repayments will now increase to a higher amount as the repayments are now based on a larger loan amount.
What are the benefits of having a redraw facility?
Having a redraw facility in place has the benefit just like an offset account in the way it can help reduce the total amount of interest payable on your home loan and in turn shorten the overall life of the loan. Another benefit of having a redraw facility in place is that if you don’t have an offset account set up and find yourself in a position where you need to access some additional funds it’s easily accessible for your needs at the drop of a hat depending on your lender. Keep in mind additional payments can be made onto your home loan at no extra cost and redraw funds can be accessed at almost any time.
If you are unsure whether this option is suitable for you it is best to talk to your mortgage broker to find out your options and what is most suitable and available for your situation.If you have any queries or a question regarding specific information around a redraw facility or offset accounts don’t hesitate to talk to your mortgage broker Gerry and he will be able to assist with answering any questions.