Which home loan features should you be looking for?
It’s a busy time in the Australian property market and when you are buying property, all the different home loan features available to you can feel overwhelming. An experienced mortgage broker will take the time to understand your financial situation and lifestyle to help you choose the best features for your home loan.
Home Loan Features Explained
Here’s an overview of what home loan features are available and what they mean. Choosing the right ones for your mortgage can help you pay off your loan faster than the standard 30-year term.
Home Loan Redraw
A home loan redraw gives you the power to withdraw any additional repayments which were made on top of your minimum loan repayment.
Say you had been making an additional repayment of $200 on a monthly basis. After a year you would be able to redraw $2,400. Any additional payments you have made can be accessed when you need them with a redraw facility set up on your loan.
Many homeowners who have a redraw feature use it as a way to keep savings on hand while reducing the interest charged on the loan.
It is important to investigate whether a lender charges a fee for loan redraws. A mortgage broker will know which lenders charge fees so you can make the decision that is best for you. When it comes to fixed-rate loans, redraw is often not available as a feature.
This may be surprising, but not all home loans will allow you to make extra payments above your minimum monthly loan repayment amount. One type of loan that usually does not have it as an available feature is a fixed-rate loan.
When this home loan feature is available, it means you can make extra repayments into your loan on top of your minimum loan repayment. For example, if your minimum monthly loan repayment is $2,000 you could pay an extra $1000 to make it $3000 a month into your loan.
Extra repayments can be made on a regular basis by changing the amount that the banks direct debit from your account. Alternatively, you can make extra repayments on an irregular basis by transferring money whenever you have it available.
Professional Package Discounts
A professional package attracts an annual fee and gives you a discount on a range of products and services from your lender. Benefits can include:
- Waived application fee
- Waived monthly loan fee
- Waived valuation fee
- Interest rate discounts (0.5% to 0.9% depending on the lender, loan size and the market)
- Waived monthly fee for a cheque account
- Waived annual fee for a credit card with rewards
- Discounted insurance products
- Special service / higher level of service from the bank
A professional package is usually available for large loans (>$250,000). They can be a good option to consider if you have multiple products with the one bank.
Interest Only Home Loan
With an interest-only period for your loan, you will only pay the interest due each month without paying for any of the principal amount. This can be beneficial to keep your repayments to an absolute minimum for a period of time, however, it is important to note this will not pay off the loan unless you make extra repayments. Interest-only periods are usually for up to five years, however, some lenders will consider 10 years or even 15 years. A mortgage broker can explain everything you need to be aware of when undertaking an interest-only period for your home loan and what time periods particular lenders will offer you.
This home loan feature allows you to have your salary paid directly into your loan account. This is most commonly used for people with Line of Credit loans or who are salary sacrificing their home loan.
With loan portability, you can move your loan on to another property. This is normally reserved for people when they are selling a home and buying a new one. In most cases, settlements will be required to occur on the same day for this feature to be available from a lender. This can avoid the need to apply for a new home loan when you move house.
Did you know that if your circumstances change you may be able to request a repayment holiday? This could be because of the arrival of a new baby, and a reduction in income for your family or other changes to your financial situation. During 2020, many homeowners accessed a repayment holiday, also known as a home loan deferral. Banks have recently stopped allowing repayment pauses as an option for COVID-19 relief, however, they will consider hardship assistance on individually-based assessments. Normally, when granted a repayment holiday, you can reduce or stop making repayments for up to six months. During this time, interest will continue to be added to your loan.
When you restart making your repayments you can increase your repayments to catch up to where you were before.
This feature of a home loan allows you to have multiple loan accounts for your one loan. This is usually seen if you set up a partial fixed-rate, partial variable rate for your mortgage. This can be beneficial because you can take advantage of a fixed rate while still being able to make extra repayments on the variable portion of your loan.
You can also use multiple loan accounts to keep track of loans used for different purposes. If you buy shares and use your home as security, you can have a separate account for this purpose so that you can show the tax office which part of your loan is tax-deductible.
100% Offset Account
A 100% offset account allows you to pay off your loan sooner by reducing your interest payments. A 100% offset account is a linked transaction account that usually has ATM and cheque access. It works by only charging you interest on the balance of your home loan less the balance of your offset account.
For example, if you had a home loan of $500,000 and you put $10,000 in your offset account, your lender will only charge you interest as if you owed them $490,000.
With the right loan type, this feature is available to anyone regardless of the amount of money they wish to borrow. There are no account keeping or hidden fees associated with this type of home loan so it won’t necessarily cost you any extra. It is generally not available on fixed-rate loans or basic home loans. A mortgage broker can explain more about this feature.
Line of Credit
A line of credit mortgage allows you to use the loan as your cheque account so you can draw down and repay the loan as you choose. You can also use the line of credit to carry out renovations, pay your bills or invest in shares.
It is similar to a credit card in that it allows you to withdraw funds at any time up to a set limit. The interest rates and fees offered on a line of the credit facility will vary from lender to lender, however, most will offer similar features such as ATM access, cheque books and internet banking.
Find the Best Home Loan Feature You Need
Different features will suit different people depending on your financial situation and your goals with your home mortgage. Coronis Finance mortgage brokers will help you by understanding what your needs are and advising what loan features will suit you best, and which lenders offer them.