In addition to regular fixed rate home loans you can shop around among Australian lenders to look for loans with additional features, such as facilities to make extra payments, redraw funds and manage offset accounts. The ability to redraw funds that you have overpaid can be very useful if you have an unexpected expense or would like more cash for an upcoming holiday.
How do fixed rate home loans with redraw facility work?
With a fixed rate home loan, you sign up to make repayments on a regular basis at the same amount, that is, the interest rate is fixed for an agreed period so will not change if interest rates should go up or down. This is a useful type of home loan if you want the security of knowing and budgeting for the precise amount of your outgoings every month. Fixed rate home loans with redraw facility offer the additional feature of allowing you to pay more than the agreed amount from time to time, and then letting you reclaim some of those funds when you need extra money.
What are the main features of a fixed rate loan with a redraw facility?
Fixed rate home loans often have fewer features than their variable rate counterparts, however, a loan that has a redraw facility is a valuable addition on a number of counts.
- If you wish, you can pay extra amounts thereby actively reducing the interest charged to the loan.
- You will still be able to pay the agreed rate for a fixed period of time, without obligation to make extra payments.
Among the types of home loans that may offer redraw facilities are standard or no frills loans, best suited to those who have regular sources of income and who prefer conventional facilities. Some interest only home loans also offer redraw facilities.
Bundled home loans usually offer a suite of features to help keep the borrowing as affordable as possible. Self employed people, homeowners and investors can all make use of bundled loans. Speciality loans include bad credit home loans and low doc varieties which may offer redraw facilities depending on the features available.
What are the risks and rewards?
During the fixed period you will have the security of fixed payments even if interest rates should rise. The consistency of a fixed rate loan means planning your budget is easier so you are more in control of your money. Having a redraw facility attached to the loan also means that you can access the extra repayments you have made into the loan to use for other projects and investments.
Your lender may set limits on the amount you can overpay, however, and how often you can redraw. If you want to refinance your loan during the fixed term you may incur extra charges that are often higher than exit fees for variable rate loans. If you make extra repayments over the limit set by your lender you could be liable for some penalty fees. It’s also the case that some lenders charge for redraws so check all these points carefully before applying for a fixed rate home loan with redraw facility.