Understanding Redraw: A Potential Tool for Managing Your Home Loan
The ‘redraw facility’ offered on many home loans can be a useful feature, but it’s essential to fully understand its mechanics before relying on it.
How Redraw Works
When you make additional payments beyond your minimum required mortgage repayment, the excess funds go into a redraw facility linked to your loan. This effectively reduces your outstanding loan balance for interest calculations.
Example
If your monthly repayment is $2,000 and you pay $3,000 in a given month, $1,000 becomes available for redraw. Since interest is calculated based on your outstanding loan balance, having extra funds in redraw will reduce your interest payment.
Benefits and Considerations of Redraw
Benefits:
- Potential Interest Savings: Redraw can help lower your overall interest costs.
- Accessibility: Most lenders offer free online access to your redraw facility.
Considerations:
- Funds Transfer: Redraw funds are not directly accessible for spending. You must transfer them to a regular transaction account first.
- Processing Delays: Some lenders may have processing times for redraw requests, restricting immediate access.
- Limitations: Redraw may not be suitable for those needing instant access to funds in an emergency.
Strategic Use of Redraw
Whether the redraw facility is a valuable tool depends on your financial circumstances and goals. A mortgage advisor can help you determine whether and how redraw can be incorporated into your home loan strategy.
You First Finance - Your Partner in Loan Management
At You First Finance, we help you navigate the complexities of home loans, including features like redraw. Contact us to explore options and optimise your mortgage for your financial well-being.
