When choosing a home loan, it’s important to consider what will best suit your needs now and what will offer flexibility into the future.
There are a number of home loan additional features that can save you money and time paying off your mortgage. These are:
- Offset facility
An offset facility gives you the ability to use your savings to reduce the interest on your loan. An offset account is a transaction account that can be linked to your home loan, the account balance in this transaction account is deducted from the home loan balance and you are only charged interest on the reduced amount, thereby reducing the amount of interest you pay.
For example, if the amount borrowed is $200,000 and the balance of the nominated offset account is $20,000, interest will be calculated on $180,000. Keep in mind, offset is not usually available during fixed rate periods and interest is not separately earned on the savings account.
- Redraw facility
Redraw is a feature available with most home loans. When you pay extra funds into your loan above the required minimum repayments, the additional funds can be withdrawn at a later stage. This allows extra repayments to be made to reduce the interest payable on the loan, whilst allowing future access to these funds if required. Some lenders will charge for redraw so it’s important to check fees and charges associated with features on your loan and aim for a redraw facility that won’t cost you.
- Introductory rates
Some lenders may provide introductory or ‘honeymoon’ interest rates for a specified period. While these may be attractive, make sure you keep an eye on any fees or interest rate changes once this period is over to ensure your loan is still competitive and meets your needs.
- Fixed rate break costs
There is usually a limit on the value of extra repayments you can make towards your loan during a fixed interest rate period. If you plan to make additional repayments with a fixed rate, investigate the extra repayments limit and any charges associated with exceeding this limit, to avoid any costly surprises as these can vary dramatically across different lenders.
- Repayment holidays
Some lenders may offer the ability to stop making repayments for a short period of time, for example a Family Repayment Pause of between 3 and 6 months if the borrower goes on maternity or paternity leave and doesn’t have funds available through their redraw facility. Conditions may apply so check with your lender.
- Home loan packages
Some lenders will offer packages which include discounted rates and access to other benefits such as discounted credit cards. There may be a small fee associated with these packages so it’s important to enquire about fees and charges associated with the package, so that the cost does not exceed the benefit.
- Interest only repayments
In some cases you can opt to only pay the interest charged on your loan, however interest only loans are not available to owner occupiers. Interest only repayments will reduce the amount of your repayments during the interest only term, however the principal balance remains the same and will affect the repayment amount you will pay when the interest only term is over. This option is often of particular interest to property investors, as the interest cost may be tax deductible against any income generated from the property. Interest only options can usually be applied to variable and fixed interest rate loans.