If you read the title of this article and thought “I can do that?” you wouldn’t be the first (or last) to think that. It might come as a surprise that you can redraw from your home loan and use the extra cash to finance a holiday or buy a new car.
By using your home loan you avoid the need for a personal loan which takes time to apply and be approved for as well as adding another loan to manage and pay off. There are benefits to refinancing or redrawing from your home loan and it all boils down to convenience and cost.
Most banks and lenders don’t have a maximum limit to how much you can redraw from your home loan, but it all depends on how many repayments you’ve already made. So, if you’re only just settling into your newly purchased home you might find it a little difficult to redraw from your loan. Whereas if you’ve been steadily paying off your mortgage for a little while you pretty much have free rein on how much you can withdraw. Just be aware that it may mean it will take you longer to pay back your loan over the long term, even if it is a relatively small loan just to get you to Fiji and back.
If however, you’re looking at spending the money on a new car or a few pricey shopping trips, you might be better off refinancing and topping up your home loan. It’s actually a lot more straightforward than you think! If you have a substantial amount of equity in your property you can give you home loan a little bit of a boost and use that cash for your big purchases. The only negative in doing this would be that it does cost you in the long run as it increases the overall amount of interest you pay on the loan.
So there are pros and cons with redrawing on your home loan and topping it up, just keep in mind that by using your home loan instead of a personal loan you will only have to manage one loan, one repayment and you have the chance to have a fair bit more since most banks don’t have a limit. Usually, the interest rate on a home loan is much lower than that of a personal loan. These factors are all important to keep in mind but as always do your own research and find out what works for you!