Redraw facilities can be a handy tool if you need cash in an emergency or are looking to fund an expensive renovation or holiday.
But what happens to your redraw when the home loan is paid off?
Find out all you need to know about redraw facilities and where the redraw balance goes once the loan finishes.
What is a Redraw?
A redraw is when a borrower accesses extra repayments they have made on their home loan.
Redraws are a handy tool, but they come with a few strings attached.
Most redraws have a minimum amount that can be withdrawn and can incur fees.
It is also important to remember that by accessing the extra repayments, you are increasing the length of your loan. This means you will pay more interest over the life of the loan.
Borrowers who only make the minimum repayments on their home loan often rely on redraws to access extra cash.
This is because interest is calculated daily and charged monthly, which means the amount of interest you pay on your loan reduces as the loan balance decreases.
Borrowers who redraw from their home loan frequently can end up paying hundreds of dollars in fees and paying interest on the loan for longer.
Benefits of Redraw Facilities
Redrawing from your home loan is not always a bad thing. Redrawing can be a useful tool to help you with cash flow issues, renovations or other unexpected expenses.
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Access Extra Cash Quickly
Redrawing from your home loan is one of the quickest ways to access extra cash. This is because you do not have to apply for a new loan or go through the loan application process again.
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Pay Less Interest
If you redraw from your home loan to make extra repayments, you will pay less interest on your loan. This is because the interest is calculated daily and charged monthly, which means the amount of interest you pay on your loan reduces as the loan balance decreases.
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Save on Fees
Borrowers who redraw from their home loan frequently can end up paying hundreds of dollars in fees. If you only redraw when you need to, you can save on these fees.
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Improve Your Credit Score
Paying extra repayments on your home loan can help improve your credit score. This is because making extra repayments shows lenders that you are a responsible borrower.
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Access Extra Funds for Renovations
If you are planning to renovate your home, redrawing from your home loan can be a quick and easy way to access the extra funds you need.
Where does the Redraw Balance Go?
Once your home loan is paid off, you will no longer be able to access any redraws that you may have.
Any redraws that are left over will be paid into your home loan account, which means the loan will be paid off sooner.
What Happens to Your Redraw if You Refinance?
If you refinance your home loan, you may be able to keep your existing redraw facility. However, this will depend on the new lender and the terms of your loan.
It's always best to check with your new lender before you refinance to see if you will be able to keep your redraw facility.
Conclusion
It is important to know what happens to your redraw when you pay off your loan. If you have a redraw facility on your loan, you may be able to access funds that you have paid into your loan account. This can be helpful if you need money for an emergency or unexpected expenses.
However, you should be aware that there may be fees associated with using your redraw facility, and you may need to meet certain requirements to access the funds.
It is also important to remember that your redraw balance will usually be lower than the original loan amount, as you will have paid interest and other fees on the loan.
If you have any questions about your redraw facility, you should speak to your lender for more information.
Wealthy You is a mortgage company in Australia that offers Sydney a variety of mortgage solutions to meet specific financial needs. If you are looking for the best home loans in Sydney, get in touch with us today!
