Your Home is not an ATM

The holiday season is almost upon us and after spending a good portion of the year couped up at home experiencing cabin fever, it’s now time to plan that well-deserved getaway. However, during a time of economic uncertainty, finding money to pay for that holiday can be challenging, and withdrawing money from the loan on your home may not be the way to go.

Let’s look at the pros and cons of redrawing on your home loan.

What is a redraw facility?

A redraw facility gives access to any extra repayments you may have made on certain types of loans. Commonly, these are home loans and personal loans, with account-holders able to withdraw some of the money already repaid as loan payments. The balance in a redraw facility consists of extra payments made towards paying off a loan, on top of the bank’s required minimum repayments.

Potential drawbacks

Having a good idea of how you might use a redraw facility is important. Depending on your circumstances, however, there may be drawbacks to using a redraw facility:

  • Fees. Some lenders may charge a fee for each redraw you seek to make.
  • Withdrawal restrictions. Limits might apply to how many redraws you can perform each year, or to how much money you can redraw at once. However, making it more difficult to redraw funds on a regular basis may not be such a bad thing if it deters you from redrawing too often, as this could potentially help you save money in the long run.
  • Ease of use. Despite withdrawal restrictions, some homeowners might still find it too convenient to have access to use a redraw facility. By withdrawing extra payments against your loan, you may reduce your long-term savings achieved.

Potential benefits of a redraw facility

Depending on your circumstances, there may be benefits to using a redraw facility:

  • Flexibility. Being able to redraw extra repayments on your home loan may be helpful, particularly in an emergency.
  • Compound interest. You would reduce the effect of compound interest on your repayments. With interest charged on your home loan likely to be higher than interest received from a cash savings account, more interest may be saved than would otherwise be earned in a savings account.
  • Long-term savings. Depending on your situation and how you use the redraw facility, you may pay less interest on your mortgage long-term.

So if you already have a redraw facility or are planning to apply for a loan with a redraw facility, it is worth checking with your lender to confirm the details of any restrictions, fees or other important terms and conditions that may apply to it.

Let us walk you through your options to help you find the right solution. Speak to one of our experts today.


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