Home Loan
A mortgage isn’t just a home loan anymore. With banks and other lenders offering a raft of features to attract new customers. A lot of Australians are unaware that every home loan & bank has different features. Before you take out a new home loan it’s important to talk to a mortgage broker. You can find out what features are available. To save you some time sifting through information we’ve broken down the most common home loan features. We have put together a summary of what you can expect when you take out a home loan / mortgage. This will help you to make an assessment on what features might be right for your individual circumstances. If you’re still unsure though, get in touch with us and we’d be happy to answer any questions you have.
Features you need to think of if you are applying for a new home loan or to refinance.
Home Loan Extra Repayments
In the wake of higher interest rates experienced over the last 12 months and more yet to come, many home loan holders are taking the initiative to make extra repayments on their mortgage to minimise the impact of higher interest. It may seem like common sense that if you have a home loan you would be able to make additional repayments. However this isn’t actually always the case. Extra repayments may be regular or you may make them regularly such as at tax time. When most Australians get a tax refund. Having the flexibility to make extra repayments can help you pay down the mortgage faster. This will save you money in interest charges over the life f your home loan.
Generally, with fixed rate loans you will not have the option to make large extra repayments. If the ability to do so is important to you, check the conditions of the loan. Or check with your mortgage broker before you finalise it to ensure that you have that flexibility. The last thing you want is to take out a home loan and then discover you can’t make additional repayments.
Home Loan Flexible Repayments
The flexibility to move your payments or split them between variable and fixed rates is important and something you need to think about before you finalise a home loan. In most cases when you take out a mortgage you will determine the repayment frequency at the time the paperwork is finalised. The most common repayment frequencies are weekly, fortnightly or monthly.
Fixed rate home loan holders could have the option to choose interest only repayments, which will not offer flexibility and can only be made monthly. For floating/variable interest rate home loan lenders will allow you to make weekly, fortnightly or monthly principal and interest repayments. As long as the minimum payment is made most lenders will not care what the frequency is.
By default home loans are set to monthly repayments so if you do need to pay weekly or fortnightly you will need to arrange that at the time that the mortgage is finalised. You can change it later on however you’ll need to check what the process is as it varies between lenders.
More frequent repayments could save you a significant amount of money over the lifetime of the home loan. If you paid an extra $200 a fortnight then you could save as much as $43,000 in interest. Interest accrues daily so the more frequently you make repayments the lower your interest. Weekly or fortnightly repayments can add up to an extra month’s worth of repayments.
Home Loan Redraw Facility
Some mortgages come with a redraw facility which means you can access additional principal repayments you’ve made on your home loan. That is useful in situations where you need cash urgently. It is fairly easy to access funds with the major banks when you have redraw facility. You can do so by simply making your request on internet banking, making a phone call or by visiting a branch if you prefer. Each bank has its own procedures, with some having minimum and maximum accounts. A redraw facility is not the same as an offset account.
Home Loan Offset Account
An offset account is an account that is linked to your home loan. It is an account where you may deposit your salary and/or savings and the balance of the account is then used to offset the amount owing on your mortgage. As an example, if you have a mortgage of $450,000 and $60,000 in your offset account you will then only be charged interest on a home loan balance of $390,000 which reduces the value of the interest you pay. The offset account is an everyday account so the money will be accessible whenever you need it. Not every home loan is eligible for an offset account and some lenders may have a limit. There may be fees associated and the money isn’t always easily accessible if you needed it. Check the details with your lender or mortgage broker before you finalise your home loan.
Home Loan Repayment Holiday
Nowadays many home loan providers offer customers the chance to take a break from their repayments. They allow repayment holidays in situations where you may need to invest your money elsewhere, for example if your household is moving from a double income to a single income due to being out of work or taking parental leave. Most repayment holidays allow you to take a break for three to 12 months. Conditions normally apply in these situations so it’s best to ask your broker or lender when you take out a mortgage.
Split Interest Rate – Split Type
Some lenders give you the option to have multiple home loan accounts. In practice this means that half your mortgage will be on a variable rate. The other half will be on a fixed rate. The good thing about this is that you can make additional repayments on the variable portion of your mortgage. You can also use the home loan accounts for different purposes such as using your home as security if you want to buy shares or investment.
Home Loan Portability
Loan portability means that you can move your home loan to another property. This feature is useful when you sell your home and purchase a new home. Loan portability means you’ll avoid having to apply for a new home loan however for this to work, you will need to arrange the settlements for the same day.
Netbank and Online Banking
A quick search shows that most banks allow people to manage their home loan using internet banking. This feature allows you to view your total home loan balance, previous transactions, payments and change your home loan type plus more. This feature is beneficial if you want to monitor your home loan regularly without having to call or go into a bank branch.
For any mortgage / home loan requirements, please feel free to contact our home loan mortgage broker.
