Can I Use My Redraw To Pay My Mortgage?

Most home loans available in Australia include a redraw facility. It is an additional feature that can help you pay off your home loan quicker and reduce your interest bill. Therefore, it’s well worth knowing about the redraw facility and how it works.

Can You Use Your Redraw to Pay Your Home Loan?

A redraw facility allows you to access any additional payments you have made on your home loan. Paying additional repayments each month minimises the principal amount owed, and your interest rate will also be reduced. Most lenders make you able to make extra repayments, but if your home loan allows a redraw, you can make additional payments knowing that you can redraw it back when you need it. You can consult with the best mortgage broker in Sydney to know more about the redraw facility.

What are the Benefits of Redraw Facility?

  • Save on Interest

A redraw means relief for people who are afraid of whether they can overpay on their home loan and allows them to take benefit of reduced interest bills. Any additional repayments on your home loan minimise the outstanding principal amount, which is what interest is calculated depending on. Even small additional repayments can quickly add up to huge savings on your total interest bill.

  • Pay-off Home Loan Faster

Another benefit of making additional payments on your home loan is paying the home loan faster. This is because additional payments go towards paying the principal. Moreover, if you are looking for the best mortgage broker in Melbourne, you can get in touch with Star Homeloans.

What Happens to Redraw When the Mortgage is Paid-off?

Once you have paid off your mortgage, your redraw facility will no longer be available. At this point, both your available redraw balance and loan balance will be zero.

What Happens to My Redraw When I Refinance?

When you refinance, the redraw balance will transfer to the new home loan product and lender. It means you can have access to additional repayments you have made.

If you are looking to refinance your home loan, you must check if you have a redraw facility for the home loan that best matches your financial situation. Make sure to check withdrawal limits and fees. Besides this, if you want to get homeownership with only a 5% deposit, you may be eligible for a first home buyers grant in Melbourne or another state or territory.

Redraw Facility vs Offset Account

  • In the redraw facility, you make additional home loan repayments beyond the standard amount. In an offset account, savings or transaction account directly connected to your home loan.
  • Redraw facilities work on reducing your overall home loan balance through additional repayments. An offset account is intended to offset your interest and can only reduce interest rates when you have built up the amount of money in the account.
  • An Offset account allows unrestricted access to your money. On the other hand, the redraw facility is not a separate account and you have to request access to your money.

Is Redraw Facility Right for You?

Although additional repayments and redraw facilities offer various benefits, the advantages will benefit the right type of borrower. Therefore, it is crucial to check if this facility will match both your personal circumstances. If you can afford to make extra repayments, a redraw facility would be a great option to reduce your interest bill and pay off your home loan faster. Additional repayments made into the redraw facility can reduce the overall loan balance and can lower the interest paid over time.

Redraw or Offset Account: Which is Better?

An offset account functions like a regular transaction account, making you able to use your debit card for payments and to transfer money in and out of the account. On the other hand, a redraw facility is not an account itself, but rather a feature linked to your eligible home loan. While it does permit access to extra repayments you’ve made on your home loan after adjustments, it doesn’t provide the same level of flexibility as an offset account.

Conclusion

It is important to understand the difference between redraw and offset account when you take a home loan. If you are looking to take a home loan, you can ask Star Homeloans in Australia and get to know the various features associated with a home loan.

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