What Happens To Redraw When Loan Is Paid Off

Home Loan Handbook

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When you take out a loan, whether it be a mortgage, car loan, or personal loan, you are typically required to make regular payments to the lender until the loan is paid off in full. These payments consist of both the principal amount borrowed and the interest charged by the lender. As you make payments over time, you may wonder what happens to the loan agreement and the associated redraw facility once the loan is completely paid off. In this article, we will explore the fate of the redraw facility when a loan is paid off and what options are available to borrowers in this scenario.

The Redraw Facility

The redraw facility is a feature offered by some lenders that allows borrowers to access any additional repayments they have made on their loan. This feature is particularly common with home loans, where borrowers can make extra repayments on top of their regular mortgage payments. These additional funds are then available for the borrower to redraw in case of emergencies or other financial needs.

What Happens When the Loan is Paid Off?

Once you have made all the required payments on your loan and the balance is reduced to zero, the loan is considered paid off in full. At this point, the lender will close the loan account and mark it as settled. But what happens to the redraw facility that was associated with the loan?

When a loan is paid off, the redraw facility typically ceases to exist. This means that any funds that were available for redraw are no longer accessible to the borrower. The account may be closed or converted into a regular savings account by the lender, depending on their policies.

Options for Borrowers

If you find yourself in a situation where your loan has been paid off and the redraw facility has been closed, there are a few options available to you:

• Request a Refund: Some lenders may offer to refund any remaining funds in the redraw facility once the loan is paid off. You can contact your lender to inquire about this option and request a refund of the available balance.
• Open a New Account: If you still require access to funds for emergencies or other purposes, you can open a new savings account or consider applying for a new loan with a redraw facility. Be sure to compare different options and choose one that suits your financial needs.
• Invest the Funds: If you have a substantial amount of money in the redraw facility, you may consider investing it in other financial instruments to generate a return. Consult with a financial advisor to explore investment opportunities that align with your financial goals.

Conclusion

In conclusion, when a loan is paid off, the associated redraw facility is typically closed, and any available funds are no longer accessible to the borrower. It is important to plan ahead and consider your options once your loan is paid off to ensure that your financial needs are met. Whether you choose to request a refund, open a new account, or invest the funds, make sure to make informed decisions that align with your financial goals.

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