Tips

Redraw Loan

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.

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.

Ask us for my tips on Redraw loans – how to Maximise benefits

More Posts

Pre-Approved loans

A loan pre-approval is written confirmation that a lender has reviewed you and your current financial position and is prepared to lend you money up to the pre-approved loan amount.

First Home Buyers – Family Assistance

The family could provide a gift of money to the purchaser. If it isn’t to be treated as a repayable loan by the bank, then the family member giving the gift will need to provide a statutory declaration signed by a Justice of the Peace.