What are the benefits of a redraw facility?

By October 5, 2017 September 6th, 2019 No Comments
What are the benefits of a redraw facility?

If you’re starting to compare home loan types, you’ll doubtless have come across something called a ‘redraw facility.’

A lot of lenders offer a redraw facility, and if you’re in a strong financial position with the ability to pay a little bit more in mortgage payments, this can be a great way to reduce interest payments and potentially shorten the length of your loan.

So, let’s take a closer look at exactly what a redraw facility is, and how it can work for you.

What is a redraw facility

With a redraw facility, you’ll be able to deposit extra income into your home loan account, above and beyond the minimum payments required. The way you do this is completely up to you and your financial situation. For example, you could pay an extra $100 per payment, or make a larger one-off payment if you get a bonus at work. These extra payments reduce the amount of interest you’ll pay on the loan, as well as possibly reducing the length of time it will take to pay it off.

These are some of the main benefits of a redraw facility, but what’s really fantastic about this home loan feature is the flexibility it can provide to move money around as required. For example, many buyers may want to deposit extra income into their home loan account, but lots of them don’t. This could be because of worries about sudden changes to their financial situation, which may necessitate access to those funds. This is where redraw facilities really come into their own, allowing for withdrawals of extra income paid into a home loan account.

Withdrawing funds with a redraw facility

Here’s how it works. In home loans with a redraw facility, it’s possible to withdraw extra money paid over and above the minimum payment requirements. This means that if you’ve been paying extra and suddenly find yourself in a situation where that money is required, you’ll be able to take it out and use it. This does negate some of the benefits of paying extra such as reduced interest and shorter loan life, but the flexibility could be well worth having just in case.

As part of a redraw facility, some lenders may charge a fee per withdrawal or after a certain number of withdrawals, while other lenders limit the maximum number of withdrawals per year or cap the amount that can be taken out of the home loan account.

Of course, redraw facilities aren’t the only ways you can reduce the balance of your home loan with surplus funds. It’s also worth considering an offset account, which you can read about in our recent article comparing the two options.

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HTA Wealth

HTA Wealth

We help our clients exceed their financial goals so that their risk is managed while creating a lasting legacy. Ben Seeger & HTA Wealth Pty Ltd are Authorised Representatives of Australian Unity Personal Financial Services Ltd ABN 26 098 725 145, AFSL No. 234459, 114 Albert Road, South Melbourne, VIC 3205.

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