What Happens To Redraw When Loan is Paid Off?

What Happens To Redraw When Loan is Paid Off?

Have you heard of Redraw but don’t know what it is? Many homeowners often overlook the concept of a redraw facility, yet it can offer numerous benefits. Once you are comfortable paying your mortgage, you would like to increase your repayments above the minimum amount. Not only could this help you pay your mortgage faster through minimising the interest charged over the lifespan of the loan, but it also means, you will be able to withdraw the extra funds when you need them.

What is Redraw?

A home loan redraw is also called a redraw facility, which indicates withdrawing extra repayments made by you towards your home loan, to be used for another reason. Extra repayments are those made towards a home loan apart from your minimum repayments. Borrowers make additional repayments to pay their home loans faster and minimise the amount of interest they have to pay over time.

How Does a Home Loan Redraw Work?

A redraw facility is an account attached to your home loan and you can make additional repayments into it. The fact about redraw is that you can use those additional repayments again when you need them. Additional repayments mean those made above the agreed minimum monthly loan repayment amount. Making extra repayments on your loan minimises the amount you owe. You don’t earn interest on those additional repayments, but you also don’t pay home loan interest for that amount.

What Happens To Redraw When Loan is Paid Off?

Once you have paid off your mortgage, your redraw facility will no longer be available. At this point, your available redraw balance and loan balance will be zero. Moreover, if you are looking for the best mortgage broker in Melbourne, you can choose Star Homeloans.

 

Benefits of Redraw Facility

  • Flexibility

One of the most common advantages of redraw is that it provides homeowners with financial flexibility. When homeowners are allowed to access these additional repayments, they could use the funds for different purposes such as home renovations, unexpected expenses, school fees, holidays, or investments.

  • Savings on Interest

Using redraw in the right way can result in savings on interest over the life of a home loan. When you make extra repayments, it minimises the outstanding principal amount and reduces the interest charged on the balance of the loan so you can pay off your mortgage faster.

  • Unexpected Expenses

It’s common to have unexpected expenses from time to time but with a redraw facility, it will be safe and extremely valuable to pay those unexpected expenses. Whether it’s job loss, medical emergency, or household repairs, you can use those extra repayments to get financial relief.

  • Increase in Equity

By accessing extra repayments you have made to offset the principal balance, homeowners can increase their equity in the property. It will allow further investments, such as buying additional properties. Redraw allows homeowners to use the equity they have built in their property for financial growth.

What is the Difference between Offset and Redraw?

The primary difference between an offset account and a redraw facility is that the funds in your offset account are separately held in a transaction account that is connected to your home loan. On the other hand, a redraw account is a part of your home loan that enables you to make additional repayments to your home loan account, and you can use those funds again when you need them.

Redraw Offset
If you want to use the funds, you must make additional repayments into your redraw facility. Offset account works the same way as a transaction account. You can use the funds at any time without making extra repayments.
To minimise the interest on your mortgage, you need to make additional repayments into your redraw facility. Money in your offset account offsets the interest charged automatically, so the more money that you have in your account, the less interest you will pay.
You can maximise the balance of your redraw facility by making additional repayments manually. You can get your salary in your offset account which can minimise the amount of interest charged.

 

Conclusion

Now that you know what will happen to redraw when you pay off the home loan, along with common differences between a redraw facility and an offset account. For more information regarding home loan products, redraw facilities and offset accounts, you can receive help from Star Homeloans in Australia.

Other Useful Link:

Personal Loan Broker Sydney