A redraw facility lets you access the extra funds you’ve already put into your home loan for emergencies
Home loans with a redraw facility allow you to redraw your additional repayments or lump-sum payments. However, this facility tends to have a minimum limit on the funds you can withdraw, with most starting from $500.
The good thing about a home loan with no minimum redraw amount is that you can withdraw as little as you want, meaning you can use the extra funds you've put towards your home loan for a variety of smaller purchases which may be important. Please note that this feature is usually found in variable rate mortgages.
Compare home loans with no minimum redraw amount
How does a home loan with a redraw facility work?
This home loan allows borrowers to pay off their debt much faster by allowing them to make extra repayments. Extra repayments reduce your loan balance quicker, and therefore save you in interest and reduce your overall loan term. Redraw facilities are flexible and allow borrowers to withdraw extra repayments made on top of the scheduled repayment amount.
While you can withdraw funds through the redraw facility, only extra repayments are accessible. Most redraw facilities have a limit on the minimum withdrawal amount, with most encouraging larger withdrawals. The home loans on this page don't have a minimum redraw amount, meaning you don’t have to feel the pressure of withdrawing large amounts since there's no minimum limit.
Redraw facility case study
A redraw facility is a useful feature with any home loan. The impact of the extra repayments could play a significant role in clearing your debt much sooner than the stipulated loan term.
If for example your home loan requires that you make repayments of $800 every month but you instead make $900 repayments, you will have made extra repayments of $1,200 in a year. Because there is no minimum redraw amount, you can withdraw as little as $200. As you can see, this amount will not have a significant impact on your loan because your debt is still reduced by an extra $1,000. However, if the home loan had a minimum redraw amount of $1,000, you would be forced to withdraw that much leaving you with an extra repayment of only $200. Not having a minimum amount allows you to make your extra repayments count.
How do I compare a mortgage that has no minimum redraw amount?
- Redraw terms and conditions. Different lenders will have their different terms and conditions. These will range from limits on the number of redraws you can make per year or a specified term to free redraws. Compare the terms and conditions to get the best features for your needs.
- Fees. Fees are an important consideration when comparing loans. Some lenders could charge you for using your redraw facility. Some of the fees you might come across with home loans include: application fees, monthly fees, valuation fees, redraw fees and others.
- Access. Compare the different access points offered as far as withdrawing your extra repayments are concerned. Does the loan come with a debit card which you can use to access your funds? Some banks allow you to access your redraw facility through online banking, mobile apps and phone banking as well.
- Interest rates. Compare the different interest rates offered by the bank depending on the type of interest. Whether you go for a fixed, variable or a split rate, you need to ensure that you are getting competitive interest rates. Remember to compare comparison rates too.
Pros and cons
Pros
- No minimum limit. Most home loans with redraw facilities have limits on the minimum amount of additional repayments you can withdraw. Some of these limits are as high as $1,000. This would only make sense if you wish to withdraw large sums of money. With this facility, you can withdraw small funds without being pressured to withdraw more than you need.
- Access your funds when you need them. If you make additional repayments, you don’t have to worry about getting an extra loan to cover emergencies. You have access to funds when you need them and this could be useful for unforeseen financial emergencies.
- Redraw doesn’t affect your scheduled repayments. The withdrawals you make do not affect your loan amount since you can only withdraw extra repayments.
Cons
- Frequency limits. While there is no minimum redraw amount, there might be limits on the number of times you can access this facility. You might not be able to redraw funds on a regular basis because of these limits.
- Extra fees. There may be extra fees that apply when you use the redraw facility.
- Typically not available with fixed rate home loans. There may be extra fees that apply when you use the redraw facility with a fixed rate home loan.
What to keep in mind when using a redraw facility
- Redraw only when necessary. This is not a transaction account so go slow on the withdrawals. Remember you're withdrawing additional repayments, so be careful not to withdraw too much.
- Fees. There are fees that apply when you use the redraw facility. Redrawing too much will mean that you keep paying extra fees.
Frequently asked questions
Is there a limit on the maximum amount I can redraw?
You can only redraw your extra repayments. In most cases, there's often a minimum withdrawal amount, but different lenders may have different terms on the maximum redraw amount.
Is there a frequency limit on redraws?
Many lenders have a limit, but there are some who have provisions for unlimited redraws.
