Once you’ve settled into life as a home owner, making regular mortgage repayments, you may find that from time to time you’re in a position to raise your repayment amount, or even make a one-off additional repayment. This is great – it means that you’re putting yourself ahead on your loan, meaning you pay less interest in the long run, paying off your home sooner.
However – none of us live in a vacuum, and from time to time, life will throw us unexpected challenges which threaten to put a dent in us financially. It’s times like this that the ability to redraw on your home loan could come in handy.
If you’ve been putting extra money towards your home loan, a redraw facility lets you re-borrow your extra repayments. What’s more – for Greater Bank customers, redraw is easy and free via Online Banking and our App.
How does a redraw facility work?
Home Loan redraw works like this – imagine you’re a customer like Alex in our video below and you need access to funds for a renovation, or some other purpose.
- Your minimum monthly repayment on your loan is $2,000
- For six months, you’ve been making monthly repayments of $2,250 – adding an additional $1,500 to your loan. (6 X $250)
- This extra $1,500 is available for you to redraw from your home loan whenever you need it
What is a Redraw on a Home Loan
Home Loan redraw basically allows you to access the advance amount you've repaid on your loan. If you've been making higher repayments than your repayment minimum amount, or you've come into a large cash payment that you've used to pay down your home loan balance, you are 'ahead' on your home loan. This means that you're on track to pay off your loan faster than the originally agreed timeframe.
Redraw allows you to dip into this advance amount as you need it, and withdraw cash from your home loan. Redraw only works, however, on the amount you have in advance - it won't let you withdraw enough cash to take you into arrears on your loan.
What are the benefits of home loan redraw?
Knowing you have money stashed away on your home loan gives you peace of mind. Not only is this money reducing the interest you pay on your total loan balance while it remains untouched, you’ve got an additional source of finance sitting there, waiting for you to use it.
Say you incur an unexpected expense, like needing to go on parental leave, changing jobs or needing to upgrade your car.
Redraw can also be used for:
- Holidays
- Renovations
- School fees
- And much more.
You can dip into your excess funds via redraw when needed. You can even opt to take a home loan repayment holiday and use the excess funds on your loan to temporarily stop making repayments, using your excess to cover a number of repayments.
Using the funds you have available in the form of redraw can also be cheaper than other forms of personal finance, like a credit card or personal loan. This is because the interest rate you pay on your home loan will usually be lower than other types of credit.
Steps to Redrawing From A Home Loan
While different financial institutions will have their own rules around the frequency, maximum amount and cost of home loan redraws, it’s usually pretty easy to redraw on any eligible home loan through online banking, over the phone or in a branch.
Before redrawing on your home loan, be sure to check your lender’s stance on the following:
- Will you be charged a fee for having a redraw facility?
- Will you be charged a fee per redraw?
- Is there a limit on the number of redraws, or free redraws per year?
- Is there a minimum or maximum redraw amount
Greater Bank customers are able to redraw on their Home Loans via our internet banking around the clock, free of charge and as many times as you like whilst there is extra repayments to re-borrow.
Lower your mortgage payments
By getting into the habit of making higher or additional repayments on your home loan, you’re effectively able to reduce the amount of interest you’re paying each month.
The monthly amount you are charged in interest on your home loan is calculated against your entire home loan balance. This means:
- If your Home Loan balance is $500,000 and your home loan interest rate is 4.09% p.a.
- And you’re $2,500 ahead on your home loan repayments
- The interest you are charged is based on the lower balance of $497,500
Used the right way, making extra repayments is really a clever way to build up your home equity, minimizing the interest you pay on your home loan while redraw is ensuring you have access to your extra repayments when needed
Redraw VS Offset/Savings Accounts
Perhaps you’re wondering why you’d make extra/additional repayments on your home loan over putting your excess funds into an offset account or high interest savings account?
Firstly, depending on where you bank, generally the money you’ll save in interest on your home loan by making extra/additional repayments will outweigh the money you would have earned in interest if you put the same amount into savings.
If you were to place your money into an offset account, you get the benefit of reducing your home loan interest paid, while maintaining instant access to your funds. However, redraw works slightly differently in that if your loan allows you to redraw, it also means that you can make extra repayments on your loan, reducing the life of your loan.
Secondly, even if you are able to secure a hot-rate on a savings account and earn more than if you’d made extra/additional home loan repayments, you may have to pay tax on this at tax time, as it will be considered earnings.
Can I redraw on my Greater Bank home loan? How?
Of course. All Greater Bank home loans offer free redraw online, but redraws can be done in a number of ways. Here’s how.
Not registered for online banking?
If you are not registered for Online Banking, you can download a Redraw Application Form here.
Simply complete this form and drop it into your nearest branch (please note, a fee may apply for any redraws processed this way).
Registered for online banking?
If you are registered for Online Banking, you can logon to apply for a redraw following the below steps:
- Click ‘Transfer between Accounts’ in the left hand menu if accessing online banking via a desktop/browser or at the bottom of the page if using our mobile banking app.
- Select your Home Loan as the account to transfer money from (you must have a balance above $0 to redraw on your loan)
- Select an account to transfer money to, along with the amount, a description and whether you want to process now or later. Click continue.
- You will be asked to read a short disclaimer - make sure you read and understand this before hitting accept.
- If you're the sole individual named on the loan - you're all done!
- If there are other names on the loan, they may need to also authorise the redraw. An authorisation notification will be sent to the other parties via Online Banking if required. All they need to do is click 'Authorisations' in the left hand column and proceed with the authorisation to complete the redraw.
Frequently asked questions
Do you pay interest on a redraw?
No. Redrawing from your home loan allows you to access money that you have repaid onto your loan over and above the minimum amount required. Think of it like water that has overflowed from a jug that's full.
You only pay interest on the outstanding loan amount, and you're not able to redraw an amount more than the overages you've repaid on your loan. If you redraw the entire advance amount from your loan balance, you will be charged interest on the full amount owing, whereas if you leave your advance amount on the loan, you will be charged interest on your lower loan balance.
Is redraw better than offset?
Redraw and offset are two completely different product features, with different use cases. The choice is yours as to whether you take out a loan than enables an offset account or home loan redraw.
Yes, both redraw and offset allow you to effectively reduce the interest you pay on your home loan, but with an offset account, the amount you keep in the offset isn't considered as part of your loan balance. Whereas with redraw, if you begin making extra repayments and choose not to redraw any, you're both reducing the interest you'll pay, and paying off your loan quicker.
Are there any redraw fees?
This depends on your lender, of course. Be sure to check with your lender before activating a redraw. At Greater Bank, redraw is free, and can be done anytime via online banking or our app.
This article is intended to provide general information of an educational nature only. This information has been prepared without taking into account your objectives, financial situation or needs. Therefore, before acting on this information, you should consider its appropriateness having regard to these matters and the product terms and conditions. Terms, conditions, fees, charges and credit criteria apply. Information in this article is current as at the date of publication.
