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What is a Redraw Loan?

Every lender has their own terms and conditions, and this is intended only as a general guide to understanding this topic. Contact us to discuss your individual circumstances.

Definition
A redraw loan enables you to make extra regular or one-off payments above your minimum monthly repayment. The redraw facility allows you to access those extra payments when you need them.

Benefits

  • You can commit to regular extra payments to reduce the interest charged on your loan, decreasing both the total amount of interest you pay and the term of the loan.
  • There is access to your funds in emergency or when they are most needed.
  • You can put your holiday, car or other savings in the redraw account – separating them from your day-to-day money.
  • It can be more effective than a savings account because you don’t have to pay tax on the interest you don’t pay.

For $10,000 savings: Bank Account Home Loan
Interest Rate 5% 7%
Interest received (saved) pa $500 $700
Tax paid $157 nil
You get (save) $343 $700

Disadvantages

  • There may be a minimum redraw amount, in some loans it is thousands of dollars.
  • There may be a fee to redraw your money, although some lenders offer free redraw.

Things to consider

  • How do you access your money? It may be instantly available, through ATM, EFTPOS etc or it may be available after a processing time – through internet or telephone banking. If you go into a bank branch to redraw, you will often be charged a fee.
  • Is there a maximum redraw amount?
  • How many free redraws are offered per year? What are the fees once you exceed your quota?
  • Is there a maximum number of redraws allowed per year? Some lenders offer unlimited redraws, other products allow a set amount.

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