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Important information.
Important information.
What is redraw?
What is redraw?
Redraw is a variable home loan product feature that gives you access to additional payments you have made on your loan above the scheduled minimum. Additional payments can be in the form of lump sum deposits or by making higher recurring repayments than the minimum. These additional payments can help to reduce the balance of your home loan and the interest you pay on it.
While the redraw feature is designed for infrequent use, it can be handy for those times you face an unexpected bill, or you need access to money for a big ticket item, like a getaway, or adding that much needed second bathroom.
Where is redraw available?
Where is redraw available?
The redraw feature is available on Variable Rate Home Loans, however, if you have a Fixed Rate Home Loan this feature will only be available once your fixed rate term expires and switches to the variable rate.
If you already had available money in redraw prior to starting the fixed rate period, the redraw amount will need to be reduced completely – you can do this by moving it all to a separate account (in which case your fixed rate loan balance will be higher) or you can reduce your home loan limit by the amount of the redraw prior to commencing your fixed rate. You can make up to $30,000 in extra payments during the fixed-rate period (going above that amount will attract a prepayment fee), however you won’t be able to access the redraw amount until the end of that fixed rate period.
There are other ways to reduce interest payable on your home loan – having an offset account can be a good way to reduce the interest charged on your home loan while also giving you access to your money whenever you need it. With an offset facility linked to one of ME’s transaction accounts you can make deposits or withdrawals, as you would with a regular transaction account, meaning an offset account is often more suitable if you plan on using - and needing access to - your funds more regularly.
What are the benefits of being in advance and having redraw available?
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Interest Savings.
Any money available for you to redraw reduces the balance of your home loan, so you’ll be paying less interest on your home loan.
Paying your loan off sooner.
You can make additional lump sum repayments or regularly pay more than your minimum required repayment. This will build up the balance you have available to withdraw later via the redraw, and may reduce the time it takes to pay off your home loan.
Repayment holiday.
Additional money available to redraw may also give you the opportunity to take a break from your scheduled repayments. You need to speak with us in order to set a repayment holiday on your home loan.
If you are struggling to meet your financial commitments, please get in touch with ME.
So how does redraw work?
So how does redraw work?
You can build an available redraw balance either by paying a regular amount above your scheduled repayment or via lump sum payments into your loan. Note, minimum repayments are based upon the actual balance of the loan at all times, however you can nominate a higher repayment at any time when you have a variable rate. Your redraw doesn’t reduce over time so you need to be aware that access to redraw at a future point in time may mean that you exceed your scheduled balance and could result in an increase to your repayments. As the available redraw doesn’t reduce over time, this means that any access to redraw near the end of your loan term is likely to result in a significant increase in repayments to ensure the loan is paid off before the end of its term.
Scenario 1: no additional repayments; redraw unavailable.
John takes out a $300,000 variable rate home loan with a loan term of 30 years and makes principal and interest repayments. The graph shows how the home loan balance will decrease over time.
Scenario 1: no additional repayments; redraw unavailable.
John takes out a $300,000 variable rate home loan with a loan term of 30 years and makes principal and interest repayments. The graph shows how the home loan balance will decrease over time.
Scenario 2: additional repayment as a lump sum; same repayments; redraw available.
John made a $100,000 lump sum payment in year 10 and kept the same minimum repayments. This resulted in John paying off the loan in 25 years instead of 30 years. Because John maintained his repayments at the same amount, he has redraw available for the life of the loan, albeit reducing slightly during the period.
Scenario 2: additional repayment as a lump sum; same repayments; redraw available.
John made a $100,000 lump sum payment in year 10 and kept the same minimum repayments. This resulted in John paying off the loan in 25 years instead of 30 years. Because John maintained his repayments at the same amount, he has redraw available for the life of the loan, albeit reducing slightly during the period.
Scenario 3: additional repayment as a lump sum; reduced repayments; redraw unavailable.
John made a $100,000 lump sum payment in year 10 and requested to reduce the minimum repayments in line with the actual balance. This means John's new scheduled balance is reduced to $150,000 and the new minimum repayment will be based on $150,000. Because John reduced his repayments in line with the new balance, he has no redraw available.
Scenario 3: additional repayment as a lump sum; reduced repayments; redraw unavailable.
John made a $100,000 lump sum payment in year 10 and requested to reduce the minimum repayments in line with the actual balance. This means John's new scheduled balance is reduced to $150,000 and the new minimum repayment will be based on $150,000. Because John reduced his repayments in line with the new balance, he has no redraw available.
Why does the redraw amount go down over time?
Why does the redraw amount go down over time?
Your available redraw reduces over the lifetime of the loan so that there are no nasty surprises at the end of your home loan period, and so both the outstanding loan balance and the available amount you can redraw will be zero.
This ensures you stay on track, and stops you getting an unexpected increase in your loan repayments if you withdraw a lump sum.
The rate at which available redraw balance reduces can depend on a number of things, like what repayment type you chose, if you made lump sum repayments, or if you chose to withdraw a lump sum from your available redraw.
If you would like more information, a ME Home loan Specialist or your Broker can discuss redraw with you in more detail.
Frequently asked questions.
What’s an offset account?
An offset account is a transaction account that’s linked to your variable home loan – but instead of earning interest, the money in the offset account acts to reduce the interest your loan accumulates. With on offset account you can make deposits or withdrawals, as you would with a regular transaction account, meaning an offset account is often more suitable if you plan on using - and needing access to - your funds more regularly.
What’s the difference between an offset facility(account) and redraw?
A redraw facility works differently to an offset account. With a redraw facility you can make additional payments to reduce the outstanding balance of your mortgage, which in turn reduces the amount of interest you pay on your home loan.
Conversely, in the case of an offset account, the balance of the offset account is subtracted from the outstanding balance of your mortgage, and you only pay interest on this difference.
Should I have an offset facility or redraw?
Depending on the product you have with ME, both of these features can be available with your home loan. You’ll need to remember that with an offset facility you won’t have the ability to reduce your regular repayments.
Paying extra money into your home loan and having available redraw can work for customers looking to reduce their repayments or access cash in the future for larger purchases or expenses. Keep in mind that you’ll need to ensure you can afford the increase to your repayments if you access available redraw.