If you have money sitting in a redraw account, you need to be aware that it's not necessarily safe if you are behind on your mortgage payments.
According to an article published on Yahoo!, many banks are causing customers who hold extra cash in their mortgage to panic since they are starting to sweep redraw accounts with the goal being to make sure that home loans are paid in a timely manner.
With these sweeps happening, if you've gotten late on paying your loan, you could see that your extra money is being swept from you in a flash.
How are Banks Sweeping Redraw Savings?
It was also said that if a lender made an error somewhere along the way with your payment calculation, this is where they are making up for it.
The bank they referenced in the article, ME Bank, was quoted as saying:
ME identified the redraw facility of some legacy home loans could lead to some customers falling behind their original repayment schedules
They went on to suggest that they are reviewing each customer affected and are working towards determining how they can assist each customer with their needs in this time of crisis.
What's happening to many people is that they are losing cash that they perhaps didn't earmark for their mortgage. This is, perhaps the most angry crowd of people who are being affected.
The money could have been there to deflect interest, be there for tuition, perhaps a rainy day fund for a broken appliance, or maybe even a deposit for a future home purchase. In many cases, this money has been taken away from those purposes and re-purposed towards the mortgage.
Although lenders are largely being a bit more lenient with their ways during these times, they will rely on fine print in times of despair, suggested the Yahoo! columnist and author, Nicole Pederson McKinnon.
Here are the two ways a sweep could happen:
People who have money sitting in redraw ask for a repayment holiday. They are being ignored. When you are ahead on your loan, your lenders simply don't prioritize you.
So, there goes your buffer!
The second one is where lenders are going through and approving repayment holidays but then reversing course and taking your redraw money as the monthly minimum every month, sometimes doing so prior to the beginning of the month, defeating the purpose of it being a holiday at all.
The worst part of this whole scenario is that the banks don't even tell you that they are going to ravage through your savings. In fact, you'll have to ask them to find out what happened.
The worst incarnation of this is when they don’t even tell you that your savings are going to be savaged. You must ask.
Banks are trying to up their daily cash flow, and this is a way they are doing it. Crooked? Perhaps. Legal? Yes, in accordance with their fine print.