We’ve put together a handy guide of home loan features you should know about. From interest only payments, to a redraw facility, learn about the features.
You only pay the interest on the loan, not the principal, usually for the first one to five years although some lenders offer longer terms. Some lenders give borrowers the option of a further interest-only period.
Because you’re not paying off the principal, your monthly repayments are lower but the cost of the loan is likely to be significantly higher. These loans are especially popular with investors who pay off the principal when the property is sold. This strategy is usually reliant on the property having achieved capital growth before it is sold.
If you pay more than the required regular repayment, the extra amount may be deducted from the principal. This not only reduces the amount you owe but lowers the amount of interest you repay. If your loan permits, making extra repayments regularly, even small ones, is a great way to pay off your home loan quicker and save on interest charges.
Instead of a regular monthly repayment, you pay off your home loan weekly or fortnightly. This can suit people who are paid on a weekly or fortnightly basis, and can save you money because you end up making more payments in a year, cutting the life of the loan.
This typically allows you to access any extra repayments you have made. Knowing you have access to funds can provide peace of mind. Be aware lenders may charge a redraw fee and have a minimum redraw amount. There might also be other restrictions on when funds can be redrawn.
You may be able to take a complete break from repayments, or make reduced repayments, for an agreed period. This can be useful for travel, maternity leave, or a career change.
This is a savings account linked to your home loan. Money paid into the savings account is deducted from the balance of your home loan before interest is calculated. The more money you save, the lower your regular home loan repayments.
You can often access your savings in the usual way, by EFTPOS and ATMs. This is a great way to reduce your loan interest, as well as eliminate the tax bill on your savings. Be aware the account may have higher monthly fees or require a minimum balance or have other restrictions. You should also be aware that there are also offset facilities that are effectively a sub-account of your loan that can be redrawn if certain conditions are satisfied. It is important to consider all the applicable terms and conditions when selecting an offset account or facility.
This combines a home loan with a cheque, savings and credit card account. You can have your salary paid into it directly and by keeping cash in the account for as long as possible each month you can reduce the interest charges. Used with discipline, the all-in-one feature offers both flexibility and interest savings. However, interest rates charged for these loans may be higher than for some other product types.
Home loans over a certain value may be offered at a discounted rate, combined with discounted fees on other banking services. These can be attractively priced, but if you don’t use the banking services you may be better off with a basic variable loan.
If you sell your current property and buy somewhere else, you may be able to take your home loan with you. This can save time and set-up fees, but you may incur other charges.
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