How Redraw Can Surprise You with Its Savings

You get the best of both worlds with a home loan redraw. This handy loan feature enables you to make extra repayments to your principal and save on interest. At the same time, you have the peace of mind that you can access these extra repayments should you be faced with an unexpected or emergency expense.

Staying ahead of your minimum monthly repayments by making regular overpayments is a smart way to pay off your home loan. Driving the principal down faster will reduce the interest you’re charged each month and help you pay off your mortgage quicker. 

Redraw offers tax advantages over storing funds in a savings account. Any interest you save on your home loan is not subject to tax, whereas any interest earned on funds stored in savings accounts is usually taxable. (Please note that any money you redraw back from your loan is not tax deductible).

For as long as you have extra funds in your mortgage you have the security of knowing you have a buffer to cope with hard times as well as the financial stability to weather any future interest rate rises.

Redraw is a home loan feature well suited to owner-occupiers who are intent on paying down home loan debt quickly, without needing frequent access to spare funds.

What to know about redraw

• It is a feature of most variable rate loans, but not usually available for fixed-rate or construction mortgages
• The fees and conditions of redraw facilities often vary from one lender to the next
• It allows you the choice to make extra deposits either by increasing your regular payment amount or by paying in lump sums
• There may be a limit to the number or frequency of redraws allowed
• You might incur fees for each withdrawal
• There is usually a minimum amount (e.g., $500) you’re permitted to redraw
• Depending on the lender, it may take time to access funds from your redraw, or you may be able to access them instantly.

How is redraw different to offset?

An offset is a savings or transaction account connected to your home loan, where you deposit funds and use it to pay off your bills and daily expenses. You don’t earn interest on the money sitting in your offset account; instead, the balance is offset against your mortgage amount.

Like redraw facilities, offset accounts differ in their fees, terms and conditions. Some are fully offset (100%) while others are only partially offset and may be conditional on a minimum account balance or withdrawal amount.

Your Yellow Brick Road mortgage broker can tell you more about the pros and cons of redraw and offset. We’ll explain the subtleties of these features and whether they will work in your situation to help pay off your loan faster.