A redraw facility is a function of a loan where you are able to withdraw money you have contributed to your loan, above your minimum payments.
If you’ve got a mortgage (and sometimes even a personal loan), and you have been paying it off with more than you have been required to, you can access those extra funds if you need them.
If you’re disciplined with money, a redraw account often works like a normal savings account, where your pay is deposited and sits there, ready for you to use it. Any excess funds in that account go towards reducing your loan balance and interest.
The major benefits to using redraw facilities is they allow you to kill two birds with one stone:
- Reduce the interest accumulating on your loan, and reduce the overall balance;
- Provide you with peace-of-mind, knowing you have money available should you require it for an emergency or otherwise.
A common drawback to using redraw facilities, is that although you do have access to the funds, withdrawing these funds requires authorisation from the lender. There may also be a limit to how many withdrawals you can make from your redraw facility each year.
If you are considering a mortgage with a redraw facility, or already have one of your own, it might be a good idea to make yourself familiar with these details:
- How much does the redraw facility cost me?
- How many free redraws can I make each year?
- How much does it cost to redraw?
- What is the maximum times I can redraw each year?
- What are the minimum and maximum redraw amounts?