A redraw facility gives access to extra repayments made on your home loan or personal loan, over and above minimum requirements. With Canstar’s 2020 Consumer Pulse Report revealing more than three quarters (79%) of Australians save a portion of after tax income each month, many of us have savings available. Yet 46% of us consider debt to be a worry too, either personally or to our families.
“More than ever before, we are seeing a clear divide between those who are doing well by adding to their savings, and those struggling who are stacking on the debt,” said Canstar’s Group Executive, Financial Services, Steve Mickenbecker.
May the flexibility of a redraw facility be worth considering as you manage your debts, savings and finances? We explain:
What is a redraw facility?
A redraw facility gives access to any extra repayments you may have made on certain types of loans. Commonly, these are home loans and personal loans, with account-holders able to withdraw some of the money already contributed as loan payments. The balance in a redraw facility consists of extra payments made towards paying off a loan, on top of their bank’s minimum repayments.
What are the potential benefits of a redraw facility?
Depending on your circumstances, there may be benefits to using a redraw facility:
- Flexibility. Being able to redraw extra repayments on your home loan may be helpful, particularly in an emergency.
- Interest savings. Because the interest rates on home loans are generally higher than those of savings accounts, you could save more money in interest by paying extra into your home loan – with the ability to redraw it again if needed – than you would earn if you kept the same funds in a savings account.
- Lower long-term costs. Depending on your situation and how you use the redraw facility, you may pay less interest on your mortgage long-term.
What are the potential drawbacks of a redraw facility?
Having a good idea of how you might use a redraw facility is important. Depending on your circumstances, there may be drawbacks to using a redraw facility:
- Fees. Some lenders may charge a fee for each redraw you seek to make. This is generally more common with withdrawals made in a branch, as opposed to online.
- Withdrawal restrictions. Limits might apply to how many redraws you can perform each year, or to how much money you can redraw at once. However, making it more difficult to redraw funds on a regular basis may not be such a bad thing if it deters you from redrawing too often, as this could potentially help you save money in the long run.
- Ease of use. Despite withdrawal restrictions, some home owners might still find it too convenient having access to use a redraw facility. By withdrawing extra payments against your loan, you may reduce your long-term savings achieved.
- Redraw terms could change. If your bank changes the terms and conditions on your loan, you could lose access to your funds, or be forced to withdraw them and find an alternative at short notice. A home loan offset account may be another option to consider if you would like to save on home loan interest but avoid the potential for your savings to be absorbed into the loan.
Before applying for a loan with a redraw facility, it could be worth checking with your lender to confirm the details of any restrictions, fees or other important terms and conditions that may apply to it.
Are you considering a home loan?
If you’re currently considering a home loan, the comparison table below displays some of the variable rate home loans on our database with links to lenders’ websites that are available for first home buyers. This table is sorted by Star Rating (highest to lowest), followed by comparison rate (lowest-highest). Products shown are principal and interest home loans available for a loan amount of $350K in NSW with an LVR of 80% of the property value.
Before committing to a particular home loan product, check upfront with your lender and read the applicable loan documentation to confirm whether the terms of the loan meet your needs and repayment capacity. Use Canstar’s home loan selector to view a wider range of home loan products.
*Comparison rate based on loan amount of $150,000 and a term of 25 years. Read the Comparison Rate Warning
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About the author:
Jacqueline Belesky is a Sub Editor at Canstar. She brings over 15 years of experience in corporate communications, media and publishing and holds a Bachelor of Journalism (Distinction) from Queensland University of Technology and postgraduate qualifications in Writing, Editing and Publishing from the University of Queensland. Jacqui was previously a Global Content and Media Manager for ABB in the UK and in Oslo, Norway, and has worked in Australia as a journalist for News Corp and editor for the Queensland Government, John Wiley & Sons and the University of Queensland. Jacqui’s articles have been published in The Courier-Mail, The Gold Coast Bulletin and on www.news.com.au. She also brings experience managing the editorial production of annual reports, financial statements, research papers and supplements on topics such as business sustainability and the global financial crisis. You can follow Jacqui on LinkedIn and Twitter, and Canstar on Facebook.