What are the features and benefits of a redraw facility?

Here's how a redraw facility could help you kick your financial goals when it comes to your mortgage.

What is a redraw facility?

A redraw facility is an extra feature that’s attached to your home loan. It provides you with the option to make extra repayments towards your home loan over and above your minimum fortnightly or monthly repayment. Whether you choose to chip in a bit extra each month or you prefer to make a lump sum contribution is completely up to you, just as long as you’re making additional payments on top of your minimum repayments.

How does a redraw facility work?

While different banks and lenders all have their own terms and conditions when it comes to their redraw facilities, the way these features work is fairly similar. To use your redraw facility, you have to make extra repayments on top of your minimum repayments. These additional repayments count toward the balance of your home loan, which helps to decrease the amount of interest you’re charged.

These additional funds will sit in your redraw facility until you need to use them. Many borrowers like to contribute towards their redraw facility so they can access the cash later down the line to fund renovations, buy a car or go on holiday. With that said, if you do decide to tap into this extra cash, you’ll essentially be increasing your loan balance, which means it could take a little longer to pay off your home loan and you’ll be up for more interest.

Some banks and lenders charge a fee to withdraw your redraw funds, whereas others might cap the amount of redraws you can make or impose a minimum redraw amount. At Unloan, you can access your additional redraw funds at any time. Read up on how the Unloan redraw facility works here.

Benefits of using a redraw facility

Having access to a redraw facility as part of your home loan can provide you with a number of different benefits that could ultimately help you to save on interest and pay off your home loan quicker than you thought. Here are just some of the main advantages that come with a redraw facility:

• Flexibility: A redraw facility provides you with flexibility in managing your finances. It allows you to make additional repayments on their loan when you have surplus funds and then redraw those funds if you need them later. This flexibility can be valuable for handling unexpected expenses or taking advantage of investment opportunities.
• Save on interest: By making extra repayments and reducing the outstanding balance of the loan, you can save on interest over the life of the loan. The ability to redraw these extra payments when needed ensures that you can still access those savings.
• Emergency fund: The redraw facility can serve as a form of emergency fund. If unexpected expenses arise, you can use the redraw facility to access funds without the need for a separate savings account. This can be particularly useful if you’re under financial strain. There’s a lot to be said for the peace of mind that comes with knowing you have a bit of cash stashed for that rainy day.
• Reduce the life of your loan: Making extra repayments and utilising a redraw facility can help you pay off their loans sooner. The reduced outstanding balance means less interest accrues over time, helping you become debt-free faster.
• Cost-effective access to funds: Compared to other forms of credit, like personal loans or credit cards, the redraw facility often offers a more cost-effective way to access funds. Interest rates on home loans are typically lower than those on other types of finance. Plus, if you’ve got a little stash saved in your redraw facility that you’d like to put towards a new property, you can access the funds without the hassle of refinancing your existing home loan.

Drawbacks of a redraw facility

Before diving straight into a home loan with a redraw facility, it’s worth considering the potential snags that also come with this kind of loan feature:

• Fees and charges: Some lenders may charge fees for using the redraw facility. There could be fees associated with each redraw transaction, and these costs can add up over time. It’s important to make sure you carefully review the fee structure associated with the redraw facility.
• Redraw limits: Sometimes lenders impose limits on the amount that can be redrawn. This could be a minimum redraw amount or a maximum percentage of the extra repayments made. If you need to access funds beyond these limits, you might need to explore other financing options.
• Impact on loan term: While making extra repayments and using a redraw facility can help pay off the loan sooner, frequent redraws could extend the loan term if it’s not managed carefully. This could result in you paying more interest over the life of the loan.
• Tax implications: Depending on how funds from the redraw facility are used, there could be tax implications. For example, if funds are redrawn for investment purposes, there may be tax considerations. In these instances, it’s well worth seeking advice from a tax professional to understand the specific implications for your individual circumstances.

A redraw facility can be a great option if your budget allows you to make extra contributions towards your home loan or if you’re trying to save for a big-ticket expense, like renovations or a holiday. With that said, no two home loans or redraw facilities are exactly the same, so make sure you do your research to find an option that best suits your circumstances and financial goals.

Learn more about what’s on offer at Unloan. From our redraw facility to stacks of other great features, there’s plenty to love about Unloan.

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This article is intended to provide general information only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Please consider seeking financial advice before making any decision based on this information.‍

Unloan is a division of Commonwealth Bank of Australia.

Applications are subject to credit approval, satisfactory security and you must have a minimum 20% equity in the property. Minimum loan amount $10,000, maximum loan amount $10,000,000, and total borrowings per customer across all Unloan loans is $10,000,000. (For purchase loans a minimum 10% equity is required - however a Lenders Mortgage Insurance (LMI) premium and higher interest rate apply. In some cases, depending on the property’s location or type, an LMI premium may also be required for LVR between 70.01% to 80%). For loans with Lenders Mortgage Insurance (LMI) the minimum loan amount is $10,000, maximum loan amount is $3,000,000 and total borrowings per customer across all Unloan loans is limited to $3,000,000).

Unloan offers a 0.01% per annum discount on the Unloan Live-In rate or Unloan Invest rate upon settlement. On each anniversary of your loan’s settlement date (or the day prior to the anniversary of your loan’s settlement date if your loan settled on 29th February and it is a leap year) the margin discount will increase by a further 0.01% per annum up to a maximum discount of 0.30% per annum. Unloan may withdraw this discount at any time. The discount is applied for each loan you have with Unloan.

*At Unloan, we do not charge any annual, application, banking, account, transaction, late or exit fees. In certain circumstances you may be required to pay a Lenders Mortgage Insurance (LMI) premium. Learn more about why this is applied and how it works. Government fees may also apply. Learn more about government fees here. Your current lender may charge an exit fee when refinancing.