Redraw Facility

A redraw facility lets you make additional repayments into your loan. In return, you will have an access to extra funds that you may use in case of need. Because of which, the redraw facility encourages borrowers to pay extra amounts to save on interest rates. It also gives the borrower access to readily available funds that they can use for any reason.

Aside from the basic variable home loans, all variable home loans have this feature. When applying for a loan that has a redraw facility, there are certain factors that must be considered. First, look out whether the loan that you are applying for has an activation fee. Lending companies charge a one-off fee for as much as $300 to activate the redraw facility.

You must also consider the amount of free redraws that are allowed per year. Within this number, redraw funds come for free. Anything excess of it can cost you an additional $10 to $50 per redraw. Also consider the number of free redraws that are allowed per year. While there are lenders who offer unlimited redraws, there are those who don’t.

You should look at the minimum and maximum redraw amount that the deal permits. There are home loans with redraw facility that do not have fixed minimum and maximum rates but you must make sure that the amount that you will redraw is within your means.

Despite the extra fees for the redraw facility, it offers a steady source of funds that can be used especially during emergency situations or for sudden opportunities for investment. However, there are borrowers who redraw funds to satisfy their material needs and this is where the redraw facility might be dangerous.

Since the process of redrawing funds is easy, there might be times that a borrower gets tempted to use the funds for personal needs. The borrower will eventually pay the price for this in the long run. Even though funds are readily available, financial discipline must still be observed.