Getting a home loan is a pretty big deal, so getting it right for you is one of the most important decisions you’ll make when buying property. Interest rates are a big consideration but did you know home loans can have many different features? There are some home loan features that will save you money and some that will give you flexibility. Read on for an explanation of the different mortgage features that might suit you.
If you choose a home loan with an offset account, you can pay less interest on your mortgage. The offset bank account attached to your mortgage works just like an everyday bank account, however, any money in there is “offset” against the home loan principal. Offset accounts are usually only available when you have a variable interest rate on your home loan.
Being able to make extra repayments as you’re able seems like something you should just be able to do, right? But did you know that some home loans attract fees to make any payment above your monthly repayment amount? If you are in a position to make extra repayments – and don’t want to use an offset account – you can pay down your loan faster by choosing a loan that will allow fee-free repayments straight on to your mortgage..
If you make extra repayments on your mortgage, you will build up money “paid in advance” of your owing repayments. If you choose a loan with a redraw facility, you can have access to that money to draw back off the mortgage. Some people use it as a pot of savings: helping you reduce your interest owing on your home loan while you don’t need the cash, but available to take back into your everyday bank account if you do need it. Redraw is another feature usually only available on home loans with a variable interest rate.
Your home loan is made up of the principal (the balance you owe on the loan) plus the interest charged by your lender for providing you with the loan. Some loans have the ability to choose an “interest only” feature which allows you to only pay the interest amount, usually available for a period of up to seven years. This brings down the ongoing repayment amount for that time period, however in the long run you still need to pay off the entire loan – principal balance and all interest owing.
Split rate option
A split rate loan means instead of choosing to fix your interest rate on your entire loan, or have only a variable rate, you can have both! In this case, you will choose a portion of your home loan to fix the interest rate while the rest of the loan will remain a variable rate. Some home buyers choose this because they want the security of a known interest rate but also want to access home loan features like an offset account or redraw facility.
Altered repayment schedule
The standard repayment cycle in Australia is monthly, but you can find home loans that allow you to have a more flexible repayment schedule that could be weekly or fortnightly instead of monthly. This can be used to match your pay cycle from your employer.
A good reason to do this is it could save you money! Here is the reason: There are 26 fortnights in a year, so if your fortnightly repayments are $1,000 this will mean you will have paid off $26,000 at the end of the year. But with a monthly repayment schedule of $2,000, you will have only paid back $24,000 over a year. That’s a whole monthly repayment amount ahead paid off when you pay fortnightly!
Home loan portability
If you decide to move, it can get costly depending on the home loan and associated fees you have chosen in the first place. If you think you may need a flexible option in this department, you can enquire about “home loan portability”. This feature allows you to transfer the security of the loan, being your first home, to the next home while keeping the same mortgage.
Home loan top up
A home loan top up feature can be handy if you are savvy about it. If you have built up a good amount of equity and your loan has this feature, you can ask your lender to borrow more money. Your lender will look at the amount of equity in your home as well as your income to determine whether they’ll approve your request. This can be used for things like renovating the house, or even buying a new car. However, it is important to understand the ins and outs of this feature because it can attract higher interest and fees.
Line of credit facility
Similar to a home loan top up, a line of credit amount you can access if you have this feature available on your loan will be determined by the amount of equity you have in your home. There is usually a cap on line of credit loans that is 80% of the property value. This feature works like an overdraft account and you’ll generally be charged higher interest and fees to access it.
There might seem like a lot of features to work through whether they would suit you or not. The good news is that an experienced mortgage broker can help you understand what home loan features will suit your current and future needs. Get in touch today on 0421 934 033 or 07 5597 6049.