If you’re new to the world of property ownership, then understanding how your home loan redraw facility works can be a gamechanger in the years to come.
Making your first foray into the property market can be both expensive and confusing – there is simply a lot of information you need to be up to speed with. First home buyers are often inundated with advice from well meaning friends and family, but there’s no “one size fits all” approach when it comes to buying the ideal property, or choosing the right type of home loan.
However, if you’re in the process of trying to get into your first home or have recently accomplished this task, understanding how a home loan redraw facility works may provide a wide range of benefits if you know how to use one.
Understanding How A Home Loan Redraw Facility Works
Once you’ve managed to break into the property market via purchasing your first home, you’ve no doubt done your fair share of the hard yards via budgeting and meticulous saving. Unfortunately the fun doesn’t stop there, as your new responsibilities don’t just include mortgage repayments – you have things like rates, insurances, and utility bills to think about too.
While purchasing a property could be the most significant investment you can expect to make in your life, the home loan that comes with it could be the biggest debt one can also expect to take on too. As such, the concept of a home loan redraw facility is growing in popularity as a means to stay on top of your financial responsibilities as a homeowner – but what exactly is it, and how does it work?
In a nutshell, a home loan redraw facility gives homeowners the opportunity to access any extra repayments that they may have made on particular types of loans. More often than not, these usually include mortgages and personal loans, with account holders permitted to withdraw some of the extra money that they have contributed as additional loan payments.
While not all mortgages offer a home loan redraw facility, it’s worth considering one that offers this choice purely because of the wide range of potential benefits on offer. The key fact to remember is that the balance in a home loan redraw facility consists of these extra contributions, on top of the bank’s minimum repayments. In simple terms, think of this feature as a savings account that actually has the potential to save you thousands in the long term.
As the interest rates on home loans are generally higher than those of traditional savings accounts, home owners could save more money in interest by paying extra into their home loan. With the ability to redraw these funds again if needed, home owners have the potential to save more money than they would by keeping the same funds in a savings account.
However, every lending provider has different terms and conditions attached to their relevant home loan redraw facility. When comparing your options for this feature, keep an eye out for the following terms and conditions.
Redraw Fees – Some loan products charge a fee for offering a home loan redraw facility, either charged upfront or once the first redraw is activated. Many banks and lending providers also charge a fee every time a customer requests a redraw, with some charging up to $50 per transaction, while others offer this as a free service.
Redraw Amounts – Some redraw facilities set the maximum as the total of additional repayments less one month’s repayments. Others set a fixed amount that you can withdraw regardless of how much more extra you may have paid. With some loans there is no minimum withdrawal, with others it is as high as $5,000.
Number Of Redraws – Depending on your lending provider of choice, banks usually have a cap on the number of redraws available per year, and have varying charges associated with these limits. As an example, some have a limit on the number of redraws a borrower can make over a set period of time, while others offer four to six free draws per annum.
While many people make the mistake of assuming that a home loan redraw facility is automatically included in their mortgage, it’s best not to assume that it’s a given. If you’re concerned about interest rates in both the immediate and distant future, it’s worth consulting with the professionals instead of simply hoping for the best and flying blind.
For first home buyers, it’s important to sign up for a home loan product that is ideally matched to your individual set of circumstances. For existing homeowners, undertaking an annual home loan health check is considered to be one of the most effective ways to carefully assess your overall financial position and identify any red flags linked to your current loan product. It’s for this reason that many people opt to partner with a mortgage broker as a means to explore all possible options – but where do you find one?
Your Guide For Navigating The World Of Home Loans
The big attraction of buying your own home is just that – it’s yours, once you’ve paid back the banks of course. Apart from having somewhere to live, the quest for home ownership is also about having a long term investment strategy. If we’re looking at it from the viewpoint of decades instead of months, generally house prices do rise, and so does the value of your investment.
With a background in banking, finance, business development and project management, there’s no better advocate to have on your team than Nikki Berzin. As a fully qualified mortgage broker and director of Cherry Lending & Finance, Nikki is passionate about all things finance, and empowering her clients with the tools to hit their property goals is what she does best.
If you’re looking to get into your first home, purchase an investment property or even want to look at your options for refinancing, the first step is starting the conversation. Get in touch with Nikki today, or call her directly on 0427 374 155 to bring your mortgage dreams to life.
Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. Subject to lenders terms and conditions, fees and charges and eligibility apply.
Credit Representative 499652 is authorised under Australian Credit License 389328.
