What home loan features do you actually need?
Here is a list of the most common home loan features lenders offer with their home loans.
We explain some of these features in more depth on their own page if you want to learn more about them.
You might not need all of these features, so don’t overlook a loan with an attractive interest rate and fee structure for flashy features you might not even need.
With that out the way…
Here’s your list of home loan features
An offset account is a transaction account linked to your home loan. The money in this account could offset the money you owe, meaning you’re only charged interest on the difference. Plus you can easily withdraw your money from this account if you ever need it.
Loans with offset accounts can sometimes come with higher interest rates. Sure you can save a lot in interest, but if you don’t plan on carrying a large balance in the account or you’d be tempted to spend the easily accessible funds, it may not be worth it.
This is when the lender lets you pay extra on top of your normal agreed-upon repayments. It can help you pay less in interest and/or pay your loan off early.
But be aware that if you pay off a fixed-rate loan early, you may incur a fee called a break fee or break cost (break costs don’t typically apply to variable-rate home loans).
A redraw facility goes hand-in-hand with extra repayments. It basically lets you access the funds from your extra repayments if you need them down the road. If you haven’t made any extra repayments, you can’t get any money out.
There is sometimes a fee for withdrawing these excess funds, so you should only use this feature for emergency situations.
A repayment holiday lets you take a short break from making your regular payments if you’ve previously built up enough of a buffer through extra repayments. It will apply those extra funds toward your monthly repayments and it comes in handy during transitional times like starting a new job, having a baby, losing a job or retiring.
This is a loan where the interest rate doesn’t fluctuate with the Reserve Bank’s official cash rate. Lenders usually only offer fixed-rate loans for periods of 1-5 years, after which your loan will revert to the variable rate.
Fixed-rate loans often have higher-rates to start off with, and it’s usually more expensive to pay them off early. However, they do offer consistency.
A split-rate home loan is a feature that lets you split your loan into two loan products: a fixed-rate loan and a variable rate loan. This lets you enjoy the flexibility and additional features of a variable-rate loan while also benefiting from the stability and consistency of a fixed-rate loan.
Remember that your fixed-rate portion will usually revert to a variable rate at the end of your fixed-rate period, which will vary based on the lender.
If you need to reduce your monthly payments, some lenders will offer an interest-only payment for a short time (usually up to 7 years). That means your payments won’t be large enough to cover any of the principal, which is the actual amount you borrowed.
This is great for first-time buyers whose funds are tight and investors who want to minimise taxes. However, it means that you’ll pay more in the long-run so it’s not good to make a habit of it.
Most lenders will pony up 80% of the home’s value, meaning you have to come up with the other 20% first. But some will offer low-deposit options and may give you up to 95% of the home’s value.
If you’re able to score a low-deposit home loan, you’ll usually be required to purchase Lenders Mortgage Insurance (LMI) that will protect the lender if you default.
If you think you can scrape together the rest of the deposit and you’re happy to enter the market a little later, it’s probably best to wait and avoid the extra costs.
Home loan portability
Home loan portability is a feature that lets you keep your existing home loan but transfer it to a new property. It’s an alternative to refinancing that can save you both time and money, although there may be some fees involved.
How to think about features
When comparing home loans, you should first identify the features that you absolutely need. For example, if you need a low-deposit loan because you only have 10% saved, then it doesn’t make sense to compare any loan without this feature.
After that, you should think of all the other features as nice-to-haves and decide if having any of these features is enough of a boon to counteract slightly higher rates and fees on loans that don’t offer them.
The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.
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