Loan features are crucial for savings on overall interest paid and quicker homeownership. As the mortgage market continues to evolve, borrowers can choose from an increasing number of home loan features and facilities. Among the many home loan features the market offers today, here's our list of the most important ones every borrower should be aware of and consider while deciding on a mortgage.
#1 Offset Account
An offset account is an account connected to your mortgage and reduces the overall interest you pay on your home loan. You pay interest only on the difference between your account savings and your loan amount with an offset account. Let us take an example where you have savings of $10,000 in your offset account and a mortgage sum of $500,000. In this case, with an offset account, you'll pay interest only on the difference, i.e., $490,000 instead of $500,000. There are three approaches you can take with a lower interest rate using an offset account.
- You can make smaller repayments and add funds back to your monthly budget.
- You can continue making the same repayments and pay off your loan faster.
- If your lender permits it, you could pay more than your stipulated repayment amount. A lower interest amount coupled with larger repayments will help you close your home loan even quicker than the previous approach.
#2 Redraw Facility
This is a facility wherein you can make additional repayments and withdraw them should the need arise. Let us say you make extra payments of $300 per month. Then, generally speaking, at the end of the year, you would be able to access $3600. There is a caveat, though. Some lenders have a redraw fee associated with withdrawals. Be sure to clearly understand any fees or charges associated with your loan's redraw facility.
#3 Larger Repayments
Making larger repayments is the most straightforward way to closing your loan faster. It's advisable to opt for a loan that allows you the flexibility to make larger repayments or even plough back large amounts from windfall gains to pay off your loan faster.
#4 Repayment frequency
Standard repayment frequencies are weekly, fortnightly and monthly. Look for a home loan that provides you with the option to change your repayment frequency. The more frequent your repayments, the sooner you'll be able to pay off your mortgage.
#5 Split Loan
Most fixed loans have a lower rate but not many loan features. On the other hand, variable rate loans have higher rates but more flexibility and features like an offset account and redraw facility. A split loan is an excellent means to make the best of both options. With this feature, you can fix a portion of your loan while leaving the rest on a variable rate. This way, you can benefit from a low fixed interest rate and features of a variable rate offering.
#6 Interest only repayments
Generally, home loan repayments comprise an interest component and a portion of the borrowed amount. An interest-only repayment includes just the interest component and is therefore much lower than a regular repayment. This option is a viable alternative to pausing or deferring repayments and can be exercised during times of financial distress.
#7 Loan portability
This feature allows you to continue with the same mortgage product on a different property. This is a good option for those looking to sell their existing home and buy a new one. With this feature, borrowers can transfer their current loan onto a new property without the hassles of refinancing or closing an existing loan and opting for a new one.
Despite a good understanding of home loan features, consider relying on a mortgage broker's professional guidance to understand what loan features apply to your circumstances. Mortgage brokers get paid by the lender upon settlement of a loan, and their services are usually free of borrowers. Not only will a broker scope the market and work with you to identify the best loan features suited to your needs but will also handle all your loan paperwork should you choose to apply for a mortgage.
Reach us for the best way forward as per your circumstances.