Home Loan Redraw Facility How Can It Benefit You?
Today, there are many different innovative features available on home loans. Some of these features, including redraw facilities, can help you save money on the total interest costs of your home loan over the term of the loan. Here we look at the redraw facility and how it could benefit you.
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What is a home loan redraw facility?
The redraw facility has become very popular with home loan borrowers over the past few years. Basically, a redraw facility allows you to make extra payments into your home loan, and then, redraw all or part of that extra money at a later time to use for any purpose that you like.
What are the advantages of using a redraw facility?
One of the major benefits to home loan borrowers of a redraw facility is that it allows borrowers to reduce the total interest payable over the life of the loan because they are making extra repayments to their home loan. So, if you make an extra $2,000 in repayments over a year, then in simple terms, your extra repayment of $2,000 will reduce the interest payable on the total outstanding amount of your mortgage.
The other advantage of the redraw facility is that you will still have access to these funds whenever you like. So, if you want to go on a holiday, or buy a new car, you can use the extra funds available in your redraw facility.
What to look out for in a redraw facility
Redraw facilities can differ from one lender to another. Here are some of the aspects of a redraw facility that you should consider before deciding on whether it is right for you.
Is there a fee to activate your redraw facility?
Some lenders may charge as high as $300 to get your redraw facility started. You should shop around to ensure your getting the best deal possible if you believe that a redraw facility is the right option for you.
Do you receive any free redraws during the year?
Some lenders will give you a set amount of free redraws each year. Charges for redrawing funds from your account could be anywhere from $10 to $50 per redraw.
Some other things to take into account when looking at home loan redraw facilities include:
- Is there any minimum and/or maximum dollar amount set for any redraws you make from your account?
- Do you have access to unlimited redraws within any one year or is there a limit?
- How often can you make redraws?
Redraw facilities can be a great way to save money and reduce the interest costs of your home loan, however they will not be for everyone as they will generally cost you money to set up. Also, while most variable rate home loans will offer a redraw facility, some basic variable home loans may not. Check with your lender if you are interested in accessing the benefits of a redraw facility.