Tips for Smart Borrowing (Maximizing the Benefits of Redraw Facilities)


Many mortgages come with redraw facilities, which allow borrowers to access any extra principal repayments made on their loan. However, it’s important to understand the terms and conditions of this feature, as they can significantly affect the overall cost and duration of your loan. Some smaller lenders may even charge fees for each withdrawal and have minimum withdrawal amounts. It’s crucial to carefully review the details of your redraw facility to avoid any unexpected costs or complications.

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While almost all variable-rate mortgages have redraw facilities, not all of them have full offset accounts. Offset accounts work similarly to redraw facilities by reducing the interest bill on the loan, but they function as a separate transaction account. It’s essential to be aware of the limitations of both options to make informed decisions about paying off your loan or accessing extra funds when needed.

A redraw facility and an offset account are two different features of a home loan. A redraw facility allows borrowers to withdraw extra payments made into their loan, while an offset account functions as an external transaction account similar to a regular bank account. Both options aim to reduce interest paid, but they operate differently with potential limitations.

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When considering a redraw facility, it’s important to note that some lenders may impose fees on withdrawals, with some charging up to $100. There may also be daily limits on ATM withdrawals and transfers, with additional withdrawal conditions in some cases. Carefully reading the product disclosure statement can help you understand how a redraw facility may affect interest savings and loan repayment timelines. For instance, if you opt to lower your monthly repayments after making a lump sum repayment, you may end up paying more interest over the life of the loan and have less money available in your redraw over time.

A redraw facility can be more beneficial than a traditional savings account, as it reduces the amount of interest paid on the loan. For example, if you have a $500,000 home loan and receive a $50,000 inheritance, depositing it into a redraw facility could save you almost $3,000 in interest over a year, compared to earning interest in a savings account at the current average rate. This is because the redraw facility reduces the outstanding loan balance, resulting in lower interest charges. In contrast, the interest earned in a savings account is subject to tax and may not offset the loan interest as effectively. Mortgage brokers and financial advisers can help you understand the costs and limitations of redraw facilities, so you can make informed decisions about utilizing them to pay off your loan or access extra funds when needed.


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