How a redraw facility can benefit you.

Effectively managing your home loan can provide greater flexibility and help you pay off your mortgage faster.

A redraw facility is one way to reduce interest costs while still having access to extra funds when needed. Here's what you need to know.

What is a redraw facility?

A redraw facility allows you to access any extra repayments you've made on your home loan. Instead of simply reducing your loan balance, these funds can be withdrawn later if necessary.

How does a redraw facility work?

For example, if your minimum mortgage repayment is $3,600 a month, but you regularly pay $3,800, after a year, you would have $2,400 in extra repayments. If an unexpected expense arises, such as urgent home repairs, you can redraw some or all that extra money from your loan.

Benefits of a redraw facility

• Interest savings: every extra repayment reduces your loan balance, resulting in less interest paid over the life of the loan.
   
• Cash flow management: redraw facilities provide convenient access to extra funds when needed, without relying on high-interest loans or credit cards.
   
• Ease of access: redrawing funds is usually straightforward through online banking or by contacting your lender.

Things to keep in mind

While redraw facilities offer flexibility, consider the following:

• Fees and limits: some lenders may charge a fee for each redraw or impose limits on minimum or maximum amounts.
   
• Availability: not all mortgages come with a redraw facility, and conditions can vary significantly between lenders.
   
• Interest costs: withdrawing funds increases your loan balance, which could result in paying more interest over time compared to leaving the funds untouched.

Redraw vs offset accounts

Both offset accounts and redraw facilities help reduce interest costs, but they serve different purposes. Offset accounts are beneficial for keeping savings readily available, while redraw facilities provide straightforward access to extra repayments. A redraw facility might be best if you prefer simplicity and don't need regular access to extra funds.

To learn more about their differences, watch the short explanation here.

You might also like to get an idea of the repayment calculations between a redraw and offset account. Please watch this video.

Ready to make your mortgage work smarter?

Having the right loan features can make a significant difference in managing your mortgage and keeping costs down. If you'd like to understand how a redraw facility could work for you, contact us now to see how this can fit into your financial strategy and help you achieve your homeownership goals faster.