You wouldn’t buy a car without considering features like parking sensors, cruise control and Bluetooth, just as you wouldn’t choose a home loan without taking into account its features.
The trick is deciding what will add value, and what you can do without. Some features offer potential savings, while most others provide the certainty of added convenience and flexibility. As your mortgage broker, we can help explain the pros and cons of features like the following.
1. Extra repayments – at no extra charge
The ability to pay extra on top of the minimum repayment could reduce your loan principal and interest, helping you pay off your home loan quicker.
Be sure to check that unlimited extra repayments come at no charge – some loans will cap the amount you can repay or will charge you a fee for paying off the loan early.
2. Redraw – two benefits in one
Redraw gives you the ability to make additional payments towards your loan, with the added bonus that you can access this cash. This enables you to reduce the amount of interest you pay, with the security of knowing the money can be withdrawn if required.
Not all redraw facilities are free, some lenders charge a fee and impose limits on the amount you can withdraw.
3. Offset account – reduces loan interest charge
This is a transaction account linked to your loan that uses your savings to ‘offset’ your home loan balance. You pay interest on your home loan balance minus the amount in that account, which means that every dollar you leave in a 100% offset account reduces interest due.
Depending on the type of loan you choose, you might want to consider a full (100%) or partial offset.
4. Portability – less hassle when moving house
Allows you to take the loan with you when you sell your home and purchase a new one, which means you can avoid costs like break fees (if you have a fixed rate loan) and application fees.
5. Split facility – greater choice
A split features allows you to allocate a portion of your home loan to a fixed rate and another portion to a variable rate – you can usually choose what portion to split.
6. Repayment holiday – relief when you need it most
The conditions vary from lender to lender, but the general idea of a repayment holiday is to provide a break from repayments. This can help you out of a tight spot but keep in mind that interest will keep accruing on your loan while you’re not making repayments.