A redraw facility essentially allows you to access any extra repayments you've made towards your home loan over and above the minimum required amount. It works like a savings account attached to your mortgage, letting you "redraw" or re-borrow that extra money you had put towards your principal when needed.

The key benefits of having a redraw facility include:

Interest Savings

Making additional payments directly towards your loan balance reduces the overall principal amount you're paying interest on. The more you can chip away at that principal through extra repayments, the less total interest accrues over the life of the mortgage - potentially saving you thousands.

Financial Flexibility

While lowering your mortgage interest is great, sometimes unexpected expenses or investment opportunities arise where having access to liquid cash is crucial. A redraw facility gives you that flexibility to tap into funds you've already paid towards your home loan rather than looking for other financing.

For example, you could redraw money for things like emergency repairs, medical bills, investment property deposits, small business needs, and more.

Investment Opportunities

Speaking of investments, redraw facilities are particularly useful for property investors. Having that extra capital easily accessible allows you to act quickly on new real estate opportunities that may not be possible if relying only on current cash flows.

Tax Benefits

Any funds redrawn are not considered new debt or income from a tax perspective since it's simply re-accessing money you had already paid towards the mortgage principal. This can provide tax advantages for investors compared to other financing methods. However, for property investors, redrawing money for non-investment purposes like personal expenses could potentially have negative tax implications by impacting your ability to claim deductions. Always consult with a tax professional on any tax implications on your finances.

Planning For Transitions

Those looking to downsize or transition between properties can utilize their redraw facility as a short-term bridge allowing them to access equity for a new home purchase before their existing home sells.

There are a few important considerations to keep in mind, however:

Potential Fees

Some lenders may charge fees for each redraw transaction or have annual limits on free redraws before incurring costs. Make sure you understand and account for any fees associated with your specific loan's redraw facility.

Extending Loan Terms

When you redraw funds, you are effectively increasing your remaining loan balance back up closer to the original amount. This means you could end up extending the term of your mortgage and its associated interest costs if you don't make consistent extra payments to make up for the redraws.

When used responsibly and as part of an overall financial strategy, redraw facilities can provide welcome flexibility and financial management capabilities. However, frequent redraws without a disciplined approach to repaying that money can negate many of the potential benefits.

Our team at Investors Mortgage can help you evaluate whether adding a redraw facility to your home loan makes sense, and provide guidance on maximizing its utility. Book a consultation today to review your mortgage needs.

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