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What is a redraw facility?

If your mortgage lender offers to let you redraw money from your home loan, this means you’re able to take any extra repayments you’ve made onto your mortgage back out of your home loan, for when you need this cash back in your bank account. 

A redraw facility can be handy if you want to enjoy the benefits of making extra home loan repayments in addition to your regular monthly repayments, such as shrinking your interest charges, but are concerned about tying up too much of your money into your home loan.

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How does a home loan redraw facility work?

A redraw facility works hand in hand with additional repayments on your home loan, sometimes called “topping up” your home loan.

When you apply for a mortgage, you agree to repay the money you borrow (also known as the principal) in a series of instalments over a long period of time (the loan term). Your lender will add an interest charge to each repayment, based on how much of your principal is still owing – the smaller your principal, the less you’ll pay in interest.

If you pay extra money onto your home loan, this money will go directly onto your mortgage principal, shrinking the total amount you owe on your loan account. Even making a small extra payment onto your mortgage each month may ultimately make a big difference to your loan’s total cost in interest charges. This may also help you to pay off your home sooner so you can make an early exit from your mortgage.  

However, once you’ve used money to pay down your mortgage, it’s not usually possible to access it again if you need it, such as when you need to pay for car repairs or medical bills. This may discourage you from putting too much of your spare change towards paying your home loan.

But if your home loan has a redraw facility, you can opt to redraw any extra repayments you’ve previously made on your mortgage (but not your scheduled mortgage payments) and return them to your bank account. This will increase the size of your loan principal, so you may miss out on some future interest savings, but the flexibility can be very welcome under the right circumstances.

How to redraw

Each mortgage lender has a slightly different redraw process, but here’s a common example of how you can use a redraw facility:

  1. Contact your lender: You may be able to access your redraw facility online through internet banking, over the phone, or by visiting a branch.
  2. Apply to redraw: This may involve filling out an application form, or ticking some boxes on your online banking or bank app.
  3. Receive your funds: The money should arrive in your nominated bank account once the lender has processed your application.

Redraw vs offset vs savings?

Mortgage holders have several options available that could help them not only manage their savings, but potentially reduce the amount of interest they pay.

  • Savings: Putting your money in a savings account or term deposit can allow you to earn interest on your savings and slowly grow your wealth over time. However, to receive the highest savings rates, you’ll often need to fulfil terms and conditions, such as making regular deposits and avoiding making withdrawals.
  • Redraw: You could put your savings into your home loan as extra repayments, shrinking your interest charges and bringing you closer to potentially paying off your property sooner. However, you’ll need a redraw facility in order to access this money again if you need it, and you may be limited by redraw limits and/or redraw fees in some instances.
  • Offset: An offset account is a savings or transaction bank account that’s linked to your home loan. Rather than letting you earn interest on your savings, money in the account is used to offset your mortgage, effectively reducing the total amount you owe when calculating your interest charges. For example, if you owe $300,000 on your mortgage, and have $10,000 saved in your offset account, you’ll be charged interest on your home loan as if you only owed $290,000. You can also transfer money to and from your offset account as easily as any other bank transaction account, which may offer a little more flexibility than some redraw facilities.

Keep in mind that home loans that offer offset accounts, redraw facilities and other special features may have higher interest rates or fees than some other more basic ‘no-frills’ home loans. Consider which options may offer you the most value in your unique financial situation.

How much can I redraw?

If you have a home loan with unlimited redraws, you can redraw as much money from your home loan as you like, whenever you like, limited only by the extra repayments you’ve previously made onto your home loan.

However, some lenders put a maximum limit on how much money you can redraw from your home loan each time. Some lenders also set minimum redraw amounts.

The number of redraws you can make per year may also be limited, or you may need to start paying redraw fees once you go over a certain number of redraws.

Redraw pros and cons
  • Put spare savings onto your mortgage as extra repayments
  • Can help you pay less interest and exit your home loan early
  • Gives you access to your extra mortgage repayments when you need them
  • May be limited by your lender
  • May require you to pay fees
  • Redrawing extra repayments means missing out on future interest savings

Do fixed rate home loans offer redraw facilities?

While the extra features different home loans include may vary from one loan to the next, redraw facilities are offered on a selection of both variable and fixed interest rate home loans. Making a home loan comparison on RateCity will allow you to compare both variable and fixed rate loans, as well as narrow down your search results to only those that include a redraw facility.

Redraw fees

Some mortgage lenders may charge fees for your redraw facility, which could include:

  • Redraw activation fee: A flat fee charged for having a redraw facility available on your home loan. This may not be included with your home loan’s other upfront fees when you first apply for the loan, and instead be charged when you first choose to activate and use your redraw facility.
  • Fee per redraw: A flat fee charged each time you use your redraw facility, to help cover the admin cost of processing your redraw.
  • Limited free redraws: Some mortgage lenders will offer a set number of free redraws each year, then start charging a flat fee for each subsequent redraw. Others won’t charge redraw fees but will set a maximum redraw amount, limiting the number of times you can redraw funds from your mortgage per year.

There are select home loans that have no redraw fees for eligible borrowers. In some cases, it can be difficult to determine whether a home loan provider charges redraw fees. Comparing home loans on RateCity can be one of the best ways you can quickly and easily find out the basic features of home loans, including details on redraw facilities and any fees associated. Alternatively, contact your mortgage broker for information specific to your personal financial situation.

Frequently asked questions

What is a redraw fee?

Redraw fees are charged by your lender when you want to take money you have already paid into your mortgage back out. Typically, banks will only allow you to take money out of your loan if you have a redraw facility attached to your loan, and the money you are taking out is part of any additional repayments you’ve made. The average redraw fee is around $19 however there are plenty of lenders who include a number of fee-free redraws a year. Tip: Negative-gearers beware – any money redrawn is often treated as new borrowing for tax purposes, so there may be limits on how you can use it if you want to maximise your tax deduction.

How does a redraw facility work?

A redraw facility attached to your loan allows you to borrow back any additional repayments that you have already paid on your loan. This can be a beneficial feature because, by paying down the principal with additional repayments, you will be charged less interest. However you will still be able to access the extra money when needed.

What is a line of credit?

A line of credit, also known as a home equity loan, is a type of mortgage that allows you to borrow money using the equity in your property.

Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.

This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.

What is the difference between offset and redraw?

The difference between an offset and redraw account is that an offset account is intended to work as a transaction account that can be accessed whenever you need. A redraw facility on the other hand is more like an “emergency fund” of money that you can draw on if needed but isn’t used for everyday expenses.

What are extra repayments?

Additional payments to your home loan above the minimum monthly instalments, which can help to reduce the loan’s term and remaining payable interest.

How does a line of credit work?

A line of credit functions in a similar way to a credit card. You have a pre-approved borrowing limit and can draw on as little or as much of that sum as you need it, with interest paid on the outstanding balance.

Popular products include Commonwealth Bank Viridian Line of Credit, ANZ Equity Manager, Westpac Equity Access and NAB Flexiplus.

How do I apply for a home improvement loan?

When you want to renovate your home, you may need to take out a loan to cover the costs. You could apply for a home improvement loan, which is a personal loan that you use to cover the costs of your home renovations. There is no difference between applying for this type of home improvement loan and applying for a standard personal loan. It would be best to check and compare the features, fees and details of the loan before applying. 

Besides taking out a home improvement loan, you could also:

  1. Use the equity in your house: Equity is the difference between your property’s value and the amount you still owe on your home loan. You may be able to access this equity by refinancing your home loan and then using it to finance your home improvement.  Speak with your lender or a mortgage broker about accessing your equity.
  2. Utilise the redraw facility of your home loan: Check whether the existing home loan has a redraw facility. A redraw facility allows you to access additional funds you’ve repaid into your home loan. Some lenders offer this on variable rate home loans but not on fixed. If this option is available to you, contact your lender to discuss how to access it.
  3. Apply for a construction loan: A construction loan is typically used when constructing a new property but can also be used as a home renovation loan. You may find that a construction loan is a suitable option as it enables you to draw funds as your renovation project progresses. You can compare construction home loans online or speak to a mortgage broker about taking out such a loan.
  4. Look into government grants: Check whether there are any government grants offered when you need the funds and whether you qualify. Initiatives like the HomeBuilder Grant were offered by the Federal Government for a limited period until April 2021. They could help fund your renovations either in full or just partially.  

Can I get a home renovation loan with bad credit?

If you're looking for funds to pay for repairs or renovations to your home, but you have a low credit score, you need to carefully consider your options. If you already have a mortgage, a good starting point is to check whether you can redraw money from that. You could also consider applying for a new home loan. 

Before taking out a new loan, it’s good to note that lenders are likely to charge higher interest rates on home repair loans for bad credit customers. Alternatively, they may be willing to lend you a smaller amount than a standard loan. You may also face some challenges with getting your home renovation loan application approved. If you do run into trouble, you can speak to your lender and ask whether they would be willing to approve your application if you have a guarantor or co-signer. You should also explain the reasons behind your bad credit rating and the steps that you’re taking to improve it. 

Consulting a financial advisor or mortgage broker can help you understand your options and make the right choice.

Who has the best home loan?

Determining who has the ‘best’ home loan really does depend on your own personal circumstances and requirements. It may be tempting to judge a loan merely on the interest rate but there can be added value in the extras on offer, such as offset and redraw facilities, that aren’t available with all low rate loans.

To determine which loan is the best for you, think about whether you would prefer the consistency of a fixed loan or the flexibility and potential benefits of a variable loan. Then determine which features will be necessary throughout the life of your loan. Thirdly, consider how much you are willing to pay in fees for the loan you want. Once you find the perfect combination of these three elements you are on your way to determining the best loan for you. 

Can I take a personal loan after a home loan?

Are you struggling to pay the deposit for your dream home? A personal loan can help you pay the deposit. The question that may arise in your mind is can I take a home loan after a personal loan, or can you take a personal loan at the same time as a home loan, as it is. The answer is that, yes, provided you can meet the general eligibility criteria for both a personal loan and a home loan, your application should be approved. Those eligibility criteria may include:

  • Higher-income to show repayment capability for both the loans
  • Clear credit history with no delays in bill payments or defaults on debts
  • Zero or minimal current outstanding debt
  • Some amount of savings
  • Proven rent history will be positively perceived by the lenders

A personal loan after or during a home loan may impact serviceability, however, as the numbers can seriously add up. Every loan you avail of increases your monthly installments and the amount you use to repay the personal loan will be considered to lower the money available for the repayment of your home loan.

As to whether you can get a personal loan after your home loan, the answer is a very likely "yes", though it does come with a caveat: as long as you can show sufficient income to repay both the loans on time, you should be able to get that personal loan approved. A personal loan can also help to improve your credit score showing financial discipline and responsibility, which may benefit you with more favorable terms for your home loan.

How do you determine which home loan rates/products I’m shown?

When you check your home loan rate, you’ll supply some basic information about your current loan, including the amount owing on your mortgage and your current interest rate.

We’ll compare this information to the home loan options in the RateCity database and show you which home loan products you may be eligible to apply for.

 

What is an ongoing fee?

Ongoing fees are any regular payments charged by your lender in addition to the interest they apply including annual fees, monthly account keeping fees and offset fees. The average annual fee is close to $200 however there are almost 2,000 home loan products that don’t charge an annual fee at all. There’s plenty of extra costs when you’re buying a home, such as conveyancing, stamp duty, moving costs, so the more fees you can avoid on your home loan, the better. While $200 might not seem like much in the grand scheme of things, it adds up to $6,000 over the life of a 30 year loan – money which would be much better off either reinvested into your home loan or in your back pocket for the next rainy day.

Example: Anna is tossing up between two different mortgage products. Both have the same variable interest rate, but one has a monthly account keeping fee of $20. By picking the loan with no fees, and investing an extra $20 a month into her loan, Josie will end up shaving 6 months off her 30 year loan and saving over $9,000* in interest repayments.

How do I apply for Westpac’s first home buyer loan?

If you’re a first home buyer looking to apply for a home loan with Westpac, they offer an online home loan application. They suggest the application can be completed in about 20 minutes. Based on the information you provide, Westpac will advise you the amount you can borrow and the costs associated with any possible home loan. 

You can use Westpac’s online mortgage calculators to estimate your borrowing power. You can also work out the time it might take to save up for the deposit, and the size of your home loan repayments

When applying for a home loan with Westpac, you’re assigned a home finance manager who can address your concerns and provide information. The manager will also offer guidance on any government grants you may be eligible for. 

Can first home buyers apply for an ING home loan?

First home buyers can apply for an ING home loan, but first, they need to select the most suitable home loan product and calculate the initial deposit on their home loan. 

First-time buyers can also use ING’s online tool to estimate the amount they can borrow. ING offers home loan applicants a free property report to look up property value estimates. 

First home loan applicants struggling to understand the terms used may consider looking up ING’s first home buyer guide. Once the home buyer is ready to apply for the loan, they can complete an online application or call ING at 1800 100 258 during regular business hours.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

What do people do with a Macquarie Bank reverse?

There are a number of ways people use a Macquarie Bank reverse mortgage. Below are some reasons borrowers tend to release their home’s equity via a reverse mortgage:

  • To top up superannuation or pension income to pay for monthly bills;
  • To consolidate and repay high-interest debt like credit cards or personal loans;
  • To fund renovations, repairs or upgrades to their home
  • To help your children or grandkids through financial difficulties. 

While there are no limitations on how you can use a Macquarie reverse mortgage loan, a reverse mortgage is not right for all borrowers. Reverse mortgages compound the interest, which means you end up paying interest on your interest. They can also affect your entitlement to things like the pension It’s important to think carefully, read up and speak with your family before you apply for a reverse mortgage.

What are the responsibilities of a mortgage broker?

Mortgage brokers act as the go-between for borrowers looking for a home loan and the lenders offering the loan. They offer personalised advice to help borrowers choose the right home loan for their needs.

In Australia, mortgage brokers are required by law to carry an Australian Credit License (ACL) if they offer credit assistance services. Which is the legal term for guidance regarding the different kinds of credit offered by lenders, including home loan mortgages. They may not need this license if they are working for an aggregator, for instance, as a franchisee. In both these situations, they need to comply with the regulations laid down by the Australian Securities and Investments Commission (ASIC).

These regulations, which are stipulated by Australian legislation, require mortgage brokers to comply with what are called “responsible lending” and “best interest” obligations. Responsible lending obligations mean brokers have to suggest “suitable” home loans. This means loans that you can easily qualify for,  actually meet your needs, and don’t prove unnecessarily challenging for you.

Starting 1 January 2021, mortgage brokers must comply with best interest obligations in addition to responsible lending obligations. These require mortgage brokers to act in the best interest of their customers and also requires them to prioritise their customers’ interests over their own. For instance, a mortgage broker may not recommend a lender who gives them a commission if that lender’s home loan offer does not benefit that particular customer.

How does a mortgage calculator work?

A mortgage calculator is an extremely helpful tool when planning to take out a home loan and working out the costs. Although each mortgage calculator you come across may be slightly different, most will help you estimate how much your repayments will be. The calculator will often also show you the difference in repayments if you repay weekly, monthly or fortnightly. 

To calculate these figures, you’ll be asked to enter a few details. These include the amount you plan to borrow, whether you’re an owner-occupier or an investor, the proposed interest rate and the home loan term. It will also often show you the total interest you’ll be charged and the total amount you’ll repay over the life of the loan.  

Understanding how the mortgage calculator works, helps you to use it to see how different loan amounts, interest rates and terms affect your repayments. This can then help you choose a home loan that you can repay comfortably and save on interest costs. The mortgage calculator lets you compare the benefits and costs of home loans from different lenders to help you make a more informed choice. Use a mortgage calculator to help identify which home loan is most suitable for your requirements and financial situation.