How does a redraw facility work?
By making extra repayments on your home loan, you can begin to reduce your overall home loan sooner, as well as your mortgage repayments. Whenever you are suddenly in need of some extra cash, however, you can choose to access, or rather, ‘redraw’ these funds. That is how a redraw facility works.
Otherwise, keeping the funds you have placed into your home loan in redraw facilities will pay off the balance much faster through the extra repayments. By the end of the loan term, both your available redraw balance and home loan balance should be zero, as the funds you deposit into the redraw facility reduces over the course of the loan.
It should be noted that redraw facilities are not usually available for construction loans, business banking, bridging, or SMSF loans, and not all lenders grant it for a fixed rate home loan. You will find most redraw facilities are for variable rate home loans, which is an important fact to remember for looking into a new home loan.
How much can I redraw?
When it comes to redrawing, some home loans may set maximum redraw amounts for your facility, regardless of how many repayments you’ve made. Most of the time, however, you can redraw the total sum of the additional repayments you’ve made just before your next scheduled repayment, minus one month’s amount.
To get a clearer idea, if you made extra repayments of $150 monthly, and chose to redraw after 12 months, you will be able to $1,800, minus one month’s repayment.
