Finding a home loan is usually one of the biggest debts Australians will have in their lifetime. So, it’s important to get the best home loan with the right features.
Please read on for our guide to home loan features and what you should know about them.
The first thing you should know about, in general, when looking for a home loan is interest rates are not all the same across home loan products. Lenders have a variety of fee and feature options available as part of their loan products and interest rates vary depending on what fees are included or not included. An experienced mortgage broker can explain different interest rates and what they mean for you.
When deciding on a home loan, you can choose between a variable rate, or fixing your rate for a period of time, or, you can choose a split rate loan. When you choose a variable rate, your interest rates, and monthly payments, vary up or down depending on what interest rates are doing. When you fix your rate, you lock in a set payment amount for an agreed period of time and that usually does not allow you to make extra repayments.
Loan splitting is when you fix the interest rate for only a portion of the home loan. This is a popular feature among home buyers giving them certainty on their repayments for a part of their loan.
Offset accounts work just like an everyday bank account, however, these ones are linked to you home loan account. Any money you have sitting in your offset account helps because the amount is “offset” against the balance of your mortgage. You only pay interest on the difference. It is a great way to save on interest but is more beneficial for people who have a chunk of savings they can keep in the account. If you need to draw on that money, less money is available to “offset” your interest due on your loan.
Redraw facility is a helpful home loan feature if you have extra cash you would like to pay into your mortgage that you can access later. Not all loans allow extra repayments so, if it is important to you, ensure it is available on the loan you are considering. Having a redraw facility means you can draw down any extra repayments because your lender will accumulate the amount separately to your normal repayment amount.
If your minimum monthly mortgage repayment is $2000 and one month you pay $4000 into your account, that means you could then withdraw the $2000 surplus back into your everyday bank account for anything you’d like to spend your money on.
It is important to remember if you are using this as a savings method for future expenses, you can only redraw the extra repayment amount, not any of the money that is used for your minimum regular repayments.
Another thing to remember is out of the offset account and redraw facility features on a home loan, funds can be more accessible from an offset account. That is because compared to the offset account which works just like an everyday bank account, a redraw facility feature may limit you to a certain number of withdrawals per year, and it may not be available for same-day withdrawal.
Unlimited additional repayments
This feature sometimes surprises home buyers considering mortgage features. Unlimited additional repayments are not allowed on all available loans. This is a feature of loans that allows you to pay extra repayment amounts on top of your regular minimum monthly repayment. Some lenders charge you a fee to be able to make extra payments.
Generally, when you take out a mortgage, your repayment amount each month includes a principal amount and interest. This gives you a loan term that eventually pays back the principal of the loan (amount you got the loan for) plus all interest charged by the lender.
An interest-only feature is when you negotiate with your lender to pay only the interest owed for an agreed period of time. During this time you will have a lower repayment amount each month instead of paying both interest and principal. It can be a helpful feature for investors because they can claim the interest charged on their home loan at tax time. An experienced mortgage broker will be able to guide you on whether this is something available to you.
Varied repayment schedule
Most lenders have a standard feature of their loans for a monthly repayment amount. An experienced mortgage broker can assist you with setting your loan up so you can make more frequent repayments if you are interested in saving money over the year. The way this works is like this: If you pay fortnightly repayments of $1000 (26 fortnights in a year) compared to monthly repayments $2000 (12 months in a year), you will have paid $26,000 off your loan instead of $24,000. That $2000 a year would help you pay your loan off faster, saving you on interest over the life of your mortgage.
There are many home loan features available to suit your personal circumstances and financial goals but, wading through them and comparing lender to lender can feel overwhelming. We hope this guide has helped you understand the most common loan features you will find when looking for a mortgage. Our expert team of mortgage brokers can assist you by understanding your goals and your needs as well as advising on the best features that will work for you and the lenders that have those features available for you.
For a stress-free mortgage process, talk to us today and our team will ensure you have access to the best information to get the home loan you need.