Redraw Explained – How You Can Save Money

Redraw facilities are a typical component of many variable home loans, and they can save homeowners a significant amount of money over the course of the loan. Here are some reasons it works for so many Sydney borrowers.

Redraw 101

The concept of redraw for conventional variable home loans is pretty simple to understand. Every home loan comes with a minimum payment amount. For variable loans, repayments happen every month (or fortnight), and interest is charged on your loan balance every month.

Redraw refers to the ability to make repayments in excess of what is necessary. You may choose to use it to supplement your monthly contribution by $50 or more, depending on your specific situation, or you may want to utilise it for unexpected income like tax returns or inheritances.

Redraw facilities are uncommon with fixed-rate home loans since they usually prohibit you from making extra payments.

Big redraw upsides

Redraw has two significant benefits. First off, you will ultimately save money by making more repayments. You can shorten the term of your loan by making additional payments into your mortgage. On top of that, the more you pay in, the less overall interest you pay. Pretty good.

Assume you had a $900,000 loan with a 25-year term and a 6.7% interest rate (a common rate at the time of writing). You can reduce the loan’s duration by 14 if you pay an additional $100 a month. What’s more, you’ll save almost $42,000 over the life of the loan. That’s not bank money; that’s money in your pocket. Even if you set aside just $50 per month, you will have saved more than $21,000.

Having access to your funds

If making loan payments on time and saving money aren’t enough of a motivation, there’s yet another significant advantage to redraw. Any additional funds you contribute to your home loan remain accessible to you, unlike loans without a redraw feature. At any time, you can draw on these extra payments for a renovation, a holiday, or if you need cash for any other reason.

Even while you forfeit the time and money savings if you use that money, it’s still pleasant to know it’s there for a rainy day or a trip to Bali.

Lenders can have different requirements for withdrawals. Some may charge you a small fee to withdraw your money, while others may place restrictions on how often you can access your funds. Some lenders have no limits at all. When you’re thinking about how frequently you might utilise redraw, it’s important to keep these principles in mind.

Talk to us

Redraw is widely used and popular, but it might not be right for you based on your unique situation and level of savings. It’s certainly not for those who tend to spend any money they have access to. Drop us a line at Mortgage Broker Sydney and we’ll work with you to determine whether a mortgage with redraw is the best choice. Our knowledgeable brokers at Mortgage Broker Sydney will assist you in finding a loan that suits your needs while also saving you money.

Contact Mortgage Broker Sydney today!