You may want to keep your loan simple, and not add on extras that you don’t want, but what if I told you a redraw facility could benefit you in the long term?! 

Let’s start at the basics, what is Redraw? 

A redraw facility holds any extra/additional repayments you have contributed to your loan above your minimum repayments. Example – Your minimum repayment for your loan is $350 per week, but you repaid $400 for the week. You’ve made an additional repayment of $50. This will populate into available redraw. 

What can I do with my available Redraw?

Having a redraw facility on your loan allows you to have access and withdraw any additional repayments you have contributed to your loan. It may be handy for you to have access to any extra funds, in case of an emergency, or need to purchase an appliance. If you were to fix your variable home loan, you will not have access to your available redraw during the fixed period, meaning, redraw is only available for variable products (can depend on the lender). 

How would this benefit me in the long term? 

Available redraw on your home loan whether it be $10 or $10,000, will reduce your loan balance owing on your home loan, meaning you will be paying less interest! You could save thousands of dollars on interest by making additional repayments, while also having access to those funds via redraw, and with that, you have the opportunity to pay off your loan quicker than planned! For more details, head over to our How to pay off your Home Loan Sooner article, where it explains about the benefits of making extra repayments. 

With a loan, you have a loan limit and loan balance. The difference is your loan limit is the combination of your loan balance and available redraw (loan balance + available redraw = loan limit), and your loan balance is your current loan limit, minus you redraw amount (loan limit – available redraw = loan balance). Easy to remember! An example is,

My current loan limit is $300,000, but I have $5,500 in available redraw, so my loan balance is $294,500.

($300,000 - $5,500 = $294,500).

And with that, you will only be paying interest on the balance, which is $294,500!

I have $5,500 available in redraw, so I’m going to withdraw $2,000 to buy a new fridge. I’ll have $3,500 remaining in available redraw. My new loan balance will be $298,000.

($294,500 + $3,500 = $298,000).

If you were to withdraw all your available redraw, your loan limit and loan balance would be the same.

When refinancing a home loan with available redraw, you have the option to withdraw your available redraw or contribute it to the new loan amount. An example is,

If I was wanting to keep my available redraw in my loan account when refinancing, the new loan limit will be $294,500. I would lose my available redraw, and not have access to it, but my loan limit is now lower.

If I was wanting to withdraw my available redraw from my loan account when refinancing, the loan limit will stay the same at $300,000. This allows me to keep my $5,500, and able to add it to my new loan account as available redraw.

Want more details as to how a Redraw Facility could benefit you in the long term? Contact Grace Loans at (02) 4905 0250 today or book an appointment here! 

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