How does a redraw facility work on a mortgage?

March 22, 2023

 

A mortgage redraw facility is a feature offered by some lenders that allows you to access additional funds from your mortgage. It is a convenient way to access extra funds when you need them, without having to apply for a new loan. In this blog post, we will discuss how a mortgage redraw facility works and the benefits it can offer.

 

 

A mortgage redraw facility is a feature offered by some lenders that allows you to access additional funds from your mortgage. It works by allowing you to withdraw funds from your mortgage account, up to a certain limit. The funds are taken from the amount of your mortgage that has already been paid off, and the remaining balance is then recalculated. This means that you can access extra funds without having to apply for a new loan or increase your existing mortgage.

 

 

The amount of funds you can access through a mortgage redraw facility will depend on the lender and the terms of your loan. Generally, the limit is set at around 20% of the total amount of your mortgage. This means that if you have a $200,000 mortgage, you can access up to $40,000 through a mortgage redraw facility.

 

A woman signing on documents in front of man

When you use a mortgage redraw facility, you will need to make sure that you are able to repay the funds you withdraw. This is because the funds are taken from the amount of your mortgage that has already been paid off, and the remaining balance is then recalculated. This means that if you withdraw more than you can repay, you will end up owing more on your mortgage.

The benefits of a mortgage redraw facility are numerous. Firstly, it can be a convenient way to access extra funds when you need them. This can be especially useful if you need to make a large purchase or pay for an unexpected expense. Secondly, it can help you save money on interest payments, as the funds you withdraw are taken from the amount of your mortgage that has already been paid off. Finally, it can also help you pay off your mortgage faster, as the funds you withdraw can be used to make additional payments on your mortgage.

 

In conclusion, a mortgage redraw facility can be a convenient and cost-effective way to access extra funds when you need them. It can help you save money on interest payments and pay off your mortgage faster. However, it is important to remember that you will need to make sure that you are able to repay the funds you withdraw, as the remaining balance of your mortgage will be recalculated.

 

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Banks “stand ready to help” people with home loan problems

January 3, 2024
The Australian Banking Association (ABA) has launched a campaign encouraging borrowers struggling with loan repayments to seek help, in a valuable reminder there are options available if you're finding it hard to keep up with your mortgage. Your bank may be able to: Reduce your home loan repayments. Pause your repayments temporarily. Switch your repayments from principal and interest to interest-only temporarily. Increase the length of your loan (thereby reducing the repayments). ABA CEO Anna Bligh said banks understood many borrowers were facing challenging circumstances. “Banks stood by their customers during the COVID-19 pandemic, deferring payments for people who for the first time in their lives found themselves unable to pay. Banks stand ready to help people again now,” she said. “People who are finding their finances are stretched should not feel they have no options and they have to do it on their own. Banks have dedicated, highly experienced teams ready to help.” As your broker, I'm also here to help. You're welcome to contact me for advice; I can then speak to and negotiate with your lender on your behalf. The key thing is to move fast, because the further you get ahead of the problem, the more flexible and helpful banks tend to be.

Is 2024 the year to buy property?

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The Reserve Bank of Australia has rounded out 2023 with the decision to hold the nation’s cash rate at 4.35%. 2023 hasn’t been an easy year for homeowners or ambitious first-home buyers. The cash rate increased from 3.10% to 4.35% over the course of eleven months in the RBA’s bid to bring inflation back within its target range. According to data from the RBA, the average home loan rate at the start of the year (for existing home loans) was 5.46% p.a.. If the lender passed on interest rates in line with the increased cash rate, that would make the interest rate 6.71% p.a.. Based on the average Australian mortgage of $599,000 on a 25-year term paying principal and interest, that equals an additional $459 per month simply to service the mortgage (from $3,661 to $4,123 per month). For first-home buyers, the average time to save for a deposit has increased to 14 years, according to a recent paper by the Australian Housing and Urban Research Institute Limited, with the national ratio of median house price to median income now sitting at 8.5. That is the hard reality many Australians are currently facing. So the question is, what will 2024 bring? Short of looking into an Australian-economy crystal ball, we can’t predict exactly what will happen with inflation, the cash rate and therefore interest rates. However, there are a couple of factors to consider. The RBA will meet only eight times in 2024 to determine whether to move the cash rate, down from the eleven in 2023. This means potentially less movements through the year. The next cash rate announcement will be 6 February. Economists from the Big Four predict the cash rate is at, or near, its peak. Some predict at least one more rate hike in 2024 and rate cuts likely not happening until at least December. Despite predictions of a decline in house prices in 2023, they have actually continued to increase in most areas around the country. This could be good news for refinancers as we enter 2024, as they could find their equity has grown. Why 2024 could be a good time for first-home buyers Despite some potential challenges, 2024 could actually be a good time to get into the housing market. Here’s why. Savings interest rates are up - the pro of the cash rate going up is that savings interest rates also tend to go up. This can help expedite saving for a deposit. It could be cheaper to be a homeowner - according to PropTrack data, it is now cheaper to buy an apartment rather than renting one in most capital cities (based over a ten-year period with a 20% deposit). In fact, a third of properties nationally are cheaper to buy than rent. The First Home Guarantee has expanded - in 2023 the eligibility criteria for the First Home Guarantee, Family Home Guarantee and Regional First Home Buyer Guarantee was expanded, enabling eligible buyers to get into the market sooner. This means if you have a 5% deposit (or 2% if you are a single parent or guardian), you may be able to use one of the schemes to purchase property without paying lenders mortgage insurance. ‘Help to buy’ scheme to be introduced - the federal government has announced plans to rollout a new scheme that will help up to 40,000 eligible buyers with as little as a 2% deposit get into the housing market with lower repayments. If 2024 is the year you want to purchase your first home, it is a good idea to speak with your broker to find out how much you may be able to borrow and set a plan in place to achieve your goal.
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