How a Redraw Facility can Cut Years from Your Homeloan

Redraw Facility

A redraw facility is increasingly becoming a standard option on many home loans, yet many families still don’t understand exactly what it is and how it works.

Verbatim, a redraw facility is a means to access funds in the form of excess payments made on your home loan.

In simpler terms, this essentially means that if you make extra repayments on top of your minimum mortgage repayments, you are able to access or redraw these funds from your home loan.

To gain a better understanding of this consider the following example;

Sarah has a minimum monthly mortgage repayment of $1000, but instead makes monthly repayments of $1100 over 12 months. She also sells her car worth $5000 during this 12 month period and makes a lump sum repayment on her home loan. Over this 12 month period, she has paid an additional $6200. This results in Sarah being able to, at any time in the future, withdraw $6200 from the value of her home loan.

But why is a redraw facility such an important consideration for your home loan?

Let’s continue from the example. Its importance lies in the fact that this additional $6200 that Sarah has repaid will reduce the value of her home loan by $6200, therefore reducing the amount of interest she is charged by $6200. This can result in huge reductions in interest repayments in the long run.

A redraw facility also assures a certain degree of flexibility as these additional repayments can be redrawn at any time over the life of the loan. This allows money to be accessed interest free as when it is redrawn, the value of the loan increases by the amount redrawn.

If you think a redraw facility might be something you want to utilise with your home loan, you should contact a financial planner to help you determine whether this is the best move for you to achieve your financial goals.

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