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Reading up on a redraw facility

Eclipse

We've covered offset accounts before, explaining how they can be useful features when purchasing property in Bowen, Cannonvale, Airlie Beach and other areas of the Whitsunday Shire. Now it's time to look at redraw facilities, another home loan feature that you might want to speak to your mortgage broker about. 

What is a redraw facility?

A redraw facility allows you to access any extra repayments you make on your home loan. If, for instance, you use a tax refund or raise to shave a little bit extra off the principal of your mortgage, you can then withdraw it at a later time to use for another purpose. 

How is it different from an offset account?

An offset account is essentially a savings account attached to your home loan that helps lower the amount of interest you pay on your mortgage. The money is offset against the loan, while for a redraw facility, the sum you put in is going directly toward paying down the mortgage. Both let you save on interest. 

Which one you choose will depend on your particular circumstances. You will only gain from an offset account if you're able to maintain a high balance – a few hundred dollars won't do much to lower your interest payments. 

What are the advantages of a redraw facility?

The redraw option provides you with flexibility, and is good for emergencies, as you have peace of mind knowing you can always get back any extra money you put into the mortgage. If you've bought a house for property investment, for instance, and you lose tenants suddenly, you can draw on these funds to help you through. 

What should I know about it before I choose a home loan?

Firstly, redraw facilities are now relatively standard features on your loan, so your biggest question will likely be whether or not to upgrade to a different feature. Be aware that many redraw facilities come with restrictions on how much and how often you can draw. They may also come with fees – check all of this with a mortgage broker.