Once you get into the rhythm of making repayments on your home loan, you might find that from time-to-time, you’re able to pay a little bit extra off each month, or additional one-off repayments (like at tax time).
Making these extra repayments can be a great idea, as you’re effectively reducing the life of your loan by reducing the interest you’re charged on the total loan balance. Its important to note that fees could apply if you make additional repayments on a fixed rate loan. If you aren't sure what type of loan you have, or want to check if fees could apply, you can reach out to us on 13 13 86 or visit your local branch for help.
What is home loan redraw?
When you make extra repayments, the additional funds build up as surplus on your loan. As this money stays within your home loan, separate to your everyday banking or savings accounts, it reduces the balance of your loan that you’re charged interest on, saving you money and shortening your loan incrementally.
Redraw is a facility of your home loan that allows you to access any funds you’ve added to your loan on top of your minimum required repayments.
How does home loan redraw work?
Depending on who your home loan is with, redraw is usually fairly easy. Keep in mind that you should always look into the conditions of your loan to make sure you’re eligible at any given point over the life of your loan. Some lenders and loans may restrict your ability to redraw on fixed loans during the fixed period of the loan, for example.
Most lenders will make redraw available via their online banking platform, app, by making a phone call or visiting a branch.
Different lenders will also have their own rules when it comes to minimum and maximum redraw amounts. All Greater Bank home loans come with no-minimum amount for redraws, and the maximum amount you can redraw will depend on how much extra you’ve paid off your loan.
Here’s an example:
- The minimum monthly repayment on Jack and Siobahn’s home loan is $1,000.00.
- Over the course of the year, the couple repay an extra $100 each month (adding up to $1,200.00 over the course of the year).
- This means that at the end of the year, Jack and Siobahn are able to redraw a maximum amount of $1,200.00.
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:
- 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.
Things to keep in mind
- After you redraw money from your home loan, you must continue to make regular repayments.
- Once you redraw funds, you should expect the interest part of your repayments will increase, as you’re now paying interest on a larger loan amount.
- Sometimes your financial circumstances may change in a way you weren’t prepared for. If you’re finding it hard to make your regular home loan repayments, we’re here to help.
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, redaw is free, and can be done anytime via online banking or our app.