Choosing the Right Home Loan Features
The home loan features you choose will always affect your ability to pay off your mortgage faster and the amount of money you save. The right home loan features will be dependant on your individual situation and your future finance needs, a good mortgage broker can help assess home loan features that match your needs.
Assistance with Choosing the Right Home Loan Features
The great number of home loan features available today may leave you confused as to which ones are right for you. If you would like to talk to a mortgage broker about the home loan features that are right for you or about the home loan options that are in your best interest, call us on 13 LOAN (or +61 2 9249 3739 for international callers) or email us the form on this page and we will return your contact within 2 business hours.
Choosing Home Loan Features that Suit Your Lifestyle
In choosing your home loan features, you should take into consideration your lifestyle over at least the next five years. And while this may sound like a long time, planning for the future will allow you to select home loan features that provide you with the right level of flexibility without paying for features you don’t need. To determine this, ask yourself:
- Is the loan for an investment or a private home?
- Is your objective to pay off the loan as quickly as possible?
- Are you disciplined and good at sticking to a budget?
- How much margin do you have in your monthly spending (to account for, say, an interest-rate rise)?
- Are you likely to get any kind of incremental bonus or financial windfalls in the future?
- Are you planning on having a baby or increasing your family dependency in the next five years?
- How will your family situation affect your income and expenditure?
Extra Flexibility Might Mean Higher Interest Rates
In general, the more flexible the loan, the more interest you can expect to pay. An example of this is the Standard Variable Rate Home loan which has features such as redraw and extra repayments will have a higher rate than a Basic Variable Rate loan. But, if you need the flexibility, the extra features could wind up saving you money in the long run. To determine if the savings from extra features will be worthwhile for you, talk to your local mortgage broker.
Types of Home Loan Features
Offset accounts
Offset accounts can help you reduce the interest you pay on your loan and are tax effective. An offset account works like a regular savings account and is linked to your home loan. The balance in your offset account is subtracted when calculating your daily interest charges. So if your loan amount is $300,000 and you have a balance of $20,000 in your offset account, your interest will be calculated on $280,000 thereby saving you money. And unlike a regular savings account where the interest you receive is taxable, earned interest used to offset home loan interest charges is not.
Redraw facility
A redraw facility allows you to make additional repayments on your home loan and access the money when you need it the most. This feature will ultimately allow you to comfortably make extra repayments, thereby saving on interest, but without having to worry about accessing the funds when you need them. The money you redraw can be used for pretty much whatever you like without having to explain or apply for it. Many lenders have a minimum redraw amount and a fee every time you use your redraw facility.
Extra Repayments
Making extra repayments on your home loan could help reduce the amount of interest you will pay. As interest is calculated daily using your principal (the amount owing on your home loan), your reduced principal amount will mean that your interest charges are decreased.
Salary Credit (Direct)
Salary credit will reduce the amount of interest you pay by reducing the principle owing on your account earlier. This feature works by allowing you to pay your salary directly into your home loan account. With interest calculated daily, the amount which your interest is calculated on will have decreased from the time your salary is in the account, thereby reducing the interest paid.
Interest only payments
Interest only payments allow you to lower repayments when you are having problems with your finances or when you would rather invest the money elsewhere. This works by allowing you to pay just the interest owing, rather than paying both the interest and principal (the loan amount owing). You then revert to making regular interest and principal payments at the end of the interest only period. Be aware that this type of feature will cost you more interest in the long run as your principal is not decreasing. You should talk to your mortgage broker and find out if there is a more suitable option for your situation.
Switching (to Fixed Rate)
A switching feature is a good option if you are not sure what rates are going to do. This feature works by effectively allowing you to switch from a variable to a fixed rate.
Portable Loan
A portable home loan allows you to take an existing loan to another property without having to refinance, i.e. pay out the old loan and take out a new one. This can save application and legal fees when you move between properties.
Repayment Holiday
If you have built up extra funds in your home loan, many lenders now offer either full or partial repayment “holidays” for periods of time. These can be particularly useful if you need to take time off work, during a career change or starting a family, and want to suspend your loan repayments until your cash flow returns to normal.
Top Up
This feature allows you to increase the limit on your existing home loan.
More information and home loan help
For more information on how and where to find a better home loan deal from an extensive panel of Australian banks and secure mortgage lenders, or to speak to your local area mortgage expert, contact us on 13 LOAN (direct +61 2 9249 3739)
