What Is Redraw Home Loan: Your Complete Australian Guide
Complete guide to what is redraw home loan in Australia. Compare options, rates, and eligibility. Expert advice from Esteb and Co.
In This Article
Finding the right what is redraw home loan option in Australia requires understanding your choices, eligibility requirements, and current market rates. This comprehensive guide covers everything you need to know.
Understanding what is redraw home loan
When exploring what is redraw home loan options, it's important to understand how they work in the Australian market. Lenders assess factors including your income, deposit size, credit history, and the property you're purchasing.
Current market conditions show variable rates starting from around 5.99% for well-qualified borrowers, with fixed rates available from 5.49% for 1-3 year terms.
Eligibility Requirements
To qualify for what is redraw home loan, most lenders require:
- Stable income - Minimum 3-6 months in current employment
- Deposit - Typically 5-20% of property value
- Credit score - Generally 600+ for mainstream lenders
- Genuine savings - Evidence of regular saving over 3+ months
- Serviceability - Ability to afford repayments at assessment rate
Interest Rates Comparison
| Lender Type | Variable Rate | Fixed Rate (2yr) | Comparison Rate |
|---|---|---|---|
| Major Banks | 6.19% - 6.89% | 5.89% - 6.49% | 6.25% - 6.95% |
| Online Lenders | 5.99% - 6.49% | 5.69% - 6.19% | 6.05% - 6.55% |
| Credit Unions | 6.09% - 6.69% | 5.79% - 6.29% | 6.15% - 6.75% |
| Non-Bank Lenders | 6.29% - 7.49% | 5.99% - 6.79% | 6.35% - 7.55% |
Rates indicative only. Your actual rate depends on your circumstances.
How to Apply
The application process for what is redraw home loan typically involves:
- Pre-approval - Get conditional approval before house hunting (1-3 days)
- Document preparation - Gather payslips, bank statements, ID
- Formal application - Submit full application with property details
- Assessment - Lender reviews and values property (3-7 days)
- Approval & settlement - Final approval and loan settlement (2-4 weeks)
Why Use a Broker
Working with a mortgage broker for what is redraw home loan offers several advantages:
- Access to 40+ lenders in one application
- Expert guidance on which lenders suit your situation
- Free service - brokers are paid by the lender
- Help with paperwork and negotiations
- Ongoing support throughout the loan term
Current Australian Home Loan Market
The Australian home loan market offers diverse options across major banks, credit unions, and non-bank lenders. Interest rates vary significantly based on your deposit size, credit history, and employment type. Fixed rates provide payment certainty, while variable rates offer flexibility and potential savings when rates drop.
Lenders assess applications using serviceability buffers (currently 3% above the loan rate) to ensure borrowers can handle rate increases. Your borrowing capacity depends on income, existing debts, living expenses, and the property type you're purchasing.
Types of Home Loans Available
| Loan Type | Best For | Key Features | Typical Rates |
|---|---|---|---|
| Variable Rate | Flexibility seekers | Extra repayments, redraw, offset | 5.99% - 7.50% |
| Fixed Rate | Budget certainty | Locked rate for 1-5 years | 5.89% - 6.99% |
| Split Loan | Best of both | Part fixed, part variable | Blended rate |
| Interest Only | Investors | Lower initial payments | +0.25% premium |
| Low Doc | Self-employed | Less paperwork required | +0.50% - 1.00% |
Application Process Step by Step
- Check your borrowing power - Use calculators or speak with a broker to understand your budget based on income, debts, and expenses
- Get pre-approval - A conditional approval (valid 3-6 months) shows sellers you're a serious buyer
- Find your property - Search within your pre-approved budget, allowing for stamp duty and other costs
- Submit full application - Provide payslips, bank statements, ID, and property contract
- Property valuation - Lender arranges valuation to confirm property value supports the loan
- Formal approval - Unconditional approval means the loan is locked in
- Settlement - Funds transfer, you get the keys, loan repayments begin
The process typically takes 2-4 weeks from application to approval, plus additional time to settlement.
Costs Beyond the Interest Rate
When comparing home loans, look beyond the headline rate:
- Comparison rate - Includes fees to show true cost (legally required for advertising)
- Application/establishment fees - $0 to $600 depending on lender
- Ongoing fees - Monthly or annual account keeping fees ($0-$400/year)
- Valuation fees - Often covered by lender, otherwise $200-$600
- Lenders Mortgage Insurance (LMI) - Required if borrowing over 80% LVR, can be $5,000-$30,000+
- Discharge fees - $150-$400 when you pay off or refinance
- Break costs - Significant fees for exiting fixed rates early
First Home Buyer Considerations
First home buyers have access to several government support programs that can significantly reduce upfront costs:
- First Home Owner Grant (FHOG) - State-based grants typically $10,000-$30,000 for new builds
- First Home Guarantee - Buy with 5% deposit without paying LMI (limited places)
- Regional First Home Buyer Guarantee - Similar scheme for regional purchases
- Family Home Guarantee - For single parents with children, 2% deposit possible
- Stamp duty concessions - Reduced or waived stamp duty in most states for first buyers
Eligibility varies by state and property type. Check your state revenue office website for current thresholds and conditions.
Refinancing and Switching Lenders
Existing homeowners should review their loan regularly. Refinancing can save thousands through:
- Lower interest rate - Even 0.5% less saves significant money over the loan term
- Better features - Offset accounts, redraw, flexible repayments
- Debt consolidation - Roll other debts into your mortgage at a lower rate
- Access equity - Use increased property value for renovations or investment
Consider refinancing costs (discharge fees, new lender fees, potentially new valuation) against potential savings. Generally, if you'll save more than the costs within 2-3 years, refinancing makes sense.
Understanding Loan Features
Modern home loans offer features that can save money and provide flexibility:
| Feature | How It Works | Benefit |
|---|---|---|
| Offset Account | Savings balance reduces loan interest | $50K offset saves ~$3K/year at 6% |
| Redraw Facility | Access extra payments you've made | Emergency access to funds |
| Extra Repayments | Pay more than minimum required | Reduces term and total interest |
| Repayment Holiday | Pause payments temporarily | Buffer during hardship |
| Split Loan | Part fixed, part variable | Rate certainty plus flexibility |
Frequently Asked Questions
Q: What deposit do I need?
A: Most lenders require 5-20% deposit. With less than 20%, you'll typically pay Lenders Mortgage Insurance (LMI). Government schemes like the First Home Guarantee allow 5% deposits without LMI.
Q: How much can I borrow?
A: Borrowing capacity depends on your income, expenses, and existing debts. As a rough guide, you can typically borrow 5-6 times your annual income.
Q: Fixed or variable rate?
A: Fixed rates offer certainty but less flexibility. Variable rates may fluctuate but usually allow extra repayments and redraw. Many borrowers split their loan between both.
Q: How long does approval take?
A: Pre-approval takes 1-3 days. Full approval typically takes 1-3 weeks depending on lender and complexity.
Q: Can I get approved with bad credit?
A: Yes, specialist lenders work with borrowers who have credit issues. Rates are higher, but options exist for most situations.
Q: How much deposit do I need for a home loan?
A: Most lenders require a minimum 5% deposit, but 20% avoids Lenders Mortgage Insurance (LMI). First home buyers may access government schemes with deposits as low as 2-5%.
Q: Can I get a home loan with bad credit?
A: Yes, specialist lenders offer home loans for people with credit issues. Expect higher rates (7-12%) and may need a larger deposit (20-30%). A broker can match you with appropriate lenders.
Q: How long does home loan approval take?
A: Pre-approval takes 1-3 days. Full approval typically takes 1-3 weeks depending on application complexity, property type, and lender processing times.
Q: Should I use a mortgage broker?
A: Brokers provide free access to multiple lenders, save time on paperwork, and can find options you might miss. They're paid by lenders, not you, and can be especially helpful for complex situations.
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