Missing redraw

Missing Redraw

Mark Stevenson, Managing Director at Bell Partners Finance (now Evolve Lending & Finance) wrote for The Western Weekender to flag a common but little-understood trap for home loan borrowers: the disappearing redraw. With the Reserve Bank having cut rates three times since June to a then record low of 0.75%, many borrowers were choosing to maintain their existing repayment amounts, effectively getting ahead on their loans and building up available redraw balances.

The problem arises when those same borrowers later call their lender to reduce their repayments to the minimum. What many do not realise is that in processing that request, lenders typically clear the available redraw balance first, applying it against the loan principal before recalculating the new lower repayments over the remaining term. The result is that money borrowers assumed was sitting there as a backup is gone, often without any clear warning from the bank at the time of the request.

Mark highlighted the real-world impact of this: borrowers going to access what they believed was available funds only to find they no longer exist, and in many cases the change cannot be reversed. The issue was compounded by the fact that lenders did not always communicate the consequences clearly, leaving borrowers unaware of what they had agreed to.

The practical advice was simple: before making any changes to home loan repayments, speak with your broker or lender and get clarity on the bank’s specific policy around redraw. Understanding the mechanics before making a request can save a significant amount of financial stress down the line.

Home loan structures can be more complex than they appear on the surface, and having a broker who understands the detail can protect you from costly surprises.

Want to make sure your home loan is structured to work in your favour? Contact Evolve Lending & Finance.