Enjoy a fixed rate home loan which allows you to make additional repayments and withdraw them when you need to.
Redraw facilities are now a common feature on most home loans. At the most basic level, they allow you to withdraw additional payments made on your loan. In order to access this facility, you would need to have made extra payments on your home loan. This facility could be likened to using your mortgage like a transaction account.
What is a fixed rate home loan with redraw?
Some fixed rate home loans allow you to make additional repayments on top of your monthly or yearly scheduled payments. These extra payments not only help you to stay ahead, they also help you save on interest and if your home loan comes with a redraw facility, you can still access some of the extra funds in the event you need them for anything. A fixed rate home loan with redraw is therefore like a home loan that can be used as a chequing account since you can withdraw the extra funds you have built up to meet other financial needs.
How do fixed rate home loans with redraw work?
A fixed rate home loan with redraw does not differ much from a normal fixed rate loan. You choose a rate fixed for a particular length of time, and during that time your repayments and rates don’t change. Fixed rate home loans generally come with higher exit fees if you leave during the fixed term, and can come with less features than variable rate home loans. The major difference would be to the fact that you can make extra repayments and redraw funds. The mechanics of these home loans are quite straight forward. First, you would need to make additional repayments and it’s important to note that lenders usually set a certain limit on this. If you make extra repayments over this limit you could be liable for break costs or other penalty fees.
What the types of fixed rate home loan come with redraw facilities?
You might be able to find redraw facilities on a number of different fixed rate home loans:
- Basic home loans. Basic home loans are also referred to as standard home loans or no frills loans, and can come with limited features and options. These loans are considered suitable for traditional borrowers with conventional sources of income.
- Package home loans. There are various package home loans that provide redraw facilities. Unlike basic home loans, these packages provide greater long term value and come with features that offer more flexibility to the borrower making the loan more affordable. Such loans are now available to homeowners, investors and self-employed individuals who often encounter problems when applying for home loans.
- Specialty home loans. As the name suggests, specialty loans are designed to offer special services. Lenders may not necessarily need to provide tax returns, traditional proof of income and other traditional forms of eligibility. A good example of this is a low doc loan or a bad credit home loan.
- Interest-only home loans. An interest-only home loan allows you to pay only the interest part of the loan, making the payments low. These loans come with limitations on how long you can pay interest-only and are suitable for investors or those building a home.
How to compare fixed home loans with redraw facilities
| Interest rates | As is the case with any other loan, you need to ensure that you are getting the best possible interest rate with your loan. This is more important when dealing with a fixed rate because it will not change for the length of the fixed term and you don’t want to be stuck with a high interest rate for the duration of your home loan. Make sure that the home loan has a competitive interest rate. |
| Redraw facility fees and conditions | Be sure to compare the conditions of the redraw facility, such as the minimum amount you must withdraw, and also the fees which may come with it. Some lenders may also limit the number of free redraws you get each year, or during the fixed rate home loan. |
| Term | What is the term of your fixed rate? You need to ensure that the term is suitable for your needs. Most lenders with fixed rate home loans offer terms ranging from one to five years. |
| Fees | As you may already know, there are different types of fees that will apply to your home loan. In addition to comparing the redraw fee above, also take into account application fees, ongoing monthly or annual fees, and any other start up costs you might have to pay. A good way to do this is by looking at the comparison rate, which takes into account some of these fees. |
Pros and cons of fixed home loan with redraw
- Pros
- Get access to extra repayments when you need. Redraw facilities help you get access to your extra repayments when you need them, which might be for an emergency or other unforeseen expense.
- Consistent repayments. Fixed rate home loans offer consistency as far as your scheduled repayments are concerned. You don’t have to worry about increasing your scheduled repayments due to changing rates.
- Peace of mind. A redraw facility gives you peace of mind knowing that the loan amount can be reduced while still having extra accessible cash in your account.
- Cons
- Some redraw facilities come with extra fees. There are fees that apply with redraws and these may be charged when you redraw.
- Some redraw facilities may have minimum amounts. There are also restrictions which are tied to redraws and these affect how much you can redraw.
- Redraw frequency limits. Lenders also put limits on redraw frequency and some might limit the number of redraws you can make per year or over the loan term. This makes it difficult for you to redraw funds regularly.
- High exit fees. Fixed rate home loans can have high exit fees, or break costs, if you choose to leave the loan before the fixed term ends.
Things to avoid about fixed rate home loans with redraw facilities
Although the ability to redraw is one that’s beneficial, you need to be careful about how you use this facility. You need to remember that although you can access your additional repayments, your home loan is not your checking account and you need not withdraw funds unless necessary. The extra repayments are meant to help you repay your home loan faster.
FAQ about fixed rate home loans with redraw
Will I be charged to redraw?
This depends on your lender. The fee is normally minimal if it does exist and most lenders offer free online redraws.
How often can I redraw?
Again, this will depend on your lender. Some lenders set limits on how often and how much you can redraw.
Is a redraw facility different from an offset account?
Yes. Redraw facilities form a part of your loan while offset accounts are a part of your regular savings accounts.
