General Comment

Home Loan Redraw

A Home Loan Redraw feature is available on most of the home loans that are offered today (but not all).  If you have a professional package home loan, then a redraw feature is a standard inclusion. It is also available on standard loans where you are paying the “standard variable” interest rate. But what is it. A redraw feature enables you to make additional deposits to your loan account in excess of the regular repayments, and to get them back if you need them. So if you receive a healthy tax return or some other unexpected funds, these can be applied to your home loan. In the future if you want the funds back, you can use the home loan redraw facility and the funds are returned to you.


Home Loan Redraw – Benefits

The benefit of this type of feature is that the interest calculation that the lender does for your loan uses the balance of the loan each day to determine how much interest you will pay. If you have reduced the balance, then you are charged less interest.  The repayment amount doesn’t change (unless you specifically ask for this to happen) and you end up paying the loan off much faster. If you redraw the money, then the interest you are being charged goes back up, but you have saved interest on the extra deposit, for the time it was paid off the loan. To see if this feature is available on your current loan contact an experienced mortgage broker to have them review your loan and compare this to the other loans that are available. If you are using the loan for an investment property then the redraw feature may have tax implications if you ever redraw the money and use it for a personal purpose. To check if your investment loan could be effected, seek the advice of a  Professional Accountant

Not all loans have a home loan redraw feature, a good example of this is fixed rate loans. Fixed rate loans have rules about how much you can pay off in addition to the standard payment, and in most cases you can’t redraw these funds until the fixed rate period has finished.

There are a few lenders who do allow home loan redraw on fixed rate home loans, they also offer an offset facility on fixed rate loans. These two features can work very well together if required.