Can I use my redraw to pay my mortgage? What you need to know

Redraw facilities are a handy tool for many homeowners managing their home loans, but not everyone knows exactly how to use them. A common question we normally get is whether you can use the funds in your redraw account to pay your mortgage.

The short answer is yes, but it comes with a few caveats.

In this article, we’ll dive deeper into how redrawing to pay your mortgage works, when it might be a good idea, and the factors you need to consider before taking this step.

Whether you’re a savvy borrower or just exploring your options, here’s what you need to know.

Can you use your redraw to pay your mortgage?

Yes, you can use the funds in your redraw account to make mortgage payments.

Since a redraw facility allows you to access the extra repayments you’ve made on your home loan, you can tap into these funds when you’re short on cash or looking to reduce your immediate financial burden.

However, this is not the same as skipping a repayment. You’re essentially withdrawing your own extra payments to meet the lender’s repayment requirements.

Does redraw reduce payments?

Technically, redrawing doesn’t reduce your regular repayment amount. Lenders typically set minimum repayment amounts based on your loan terms, regardless of how much extra you’ve paid into the loan.

Here’s what happens instead:

• Interest savings: By redrawing less and leaving more in the loan, you keep your balance lower and save on interest.
• Short-term cash flow: Redrawing gives you temporary financial relief, but it doesn’t change your obligation to meet monthly repayments.

If you’re looking to permanently reduce your repayments, refinancing or restructuring your loan might be better options.

Also Read: Why is my redraw amount reducing?

Should you use your redraw to pay your mortgage?

Using your redraw to make mortgage payments can be helpful in specific situations, but it’s not always the best choice.

When it’s a good idea:

• Short-term financial strain: If unexpected expenses arise and you’re struggling to meet repayments, a redraw can provide temporary relief.
• Accessing your own funds: Redrawing is your money, so it can feel less risky than taking on new debt.

When to reconsider:

• Long-term impact: Using your redraw reduces the extra repayments you’ve made, which means you’ll save less on interest over time.
• Discipline required: It’s easy to dip into your redraw for non-essential expenses, which can derail your financial goals.

What restrictions or risks are involved?

Before using your redraw to pay your mortgage, consider the potential restrictions and risks:

1. Lender conditions: Some lenders may limit how often you can redraw or charge fees for accessing funds.
2. Loss of buffer: Once you’ve withdrawn funds, you lose the repayment buffer you had, which could make it harder to manage future financial stress.
3. Can the bank take my redraw?: In rare cases, lenders can restrict or freeze redraw access, especially if you’re behind on payments or in financial distress. Always check your loan terms to understand your rights.

Things to consider before redrawing on your mortgage

• Cash flow vs savings: Balance your immediate needs with your long-term interest savings.
• Alternative options: Refinancing or speaking to a lender may provide better solutions if you’re looking to reduce repayments permanently.
• Consulting a professional: A mortgage broker can help you evaluate whether using your redraw is the best option for your financial situation.

Also Read: What happens to redraw when the loan is paid off?

Ready to make sense of your home loan options?

Deciding whether to use your redraw to pay your mortgage isn’t always straightforward.

At Broker360, our mortgage brokers are here to guide you through your options, helping you make choices that align with your financial goals.

Get in touch with us to get started.