Are you looking for a basic home loan or one with bells and whistles?
There are loads of home loan features to help you effectively manage your money and pay off your home loan sooner.
It helps to know some of the most common home loan features so you understand the differences between individual home loan packages.
Most (but not all) home loans allow you to pay over the minimum payments for the loan, allowing you to pay off your loan faster. Small amounts add up over the life of the loan – it’s amazing how far that extra $10 a week can take you!
In our parent’s generation, home loans were only paid once each month. Now there are options for weekly or fortnightly repayments to suit your income and lifestyle. More frequent payments have the added benefit of reducing the life of your loan through reduced interest and through you paying additional payments each year.
An offset facility is a way to reduce your mortgage more quickly. A mortgage-offset account can replace your personal transaction account. You have your salary paid straight into your offset account that is linked to your mortgage but not a part of it. You can access your money in the same way you would if you still had any other accounts – ATM, EFTPOS, Cheque, Telephone & Internet Banking.
Offset and redraw are close relatives in that they essentially achieve the same thing. You pay extra in, allowing you to decrease the balance of your mortgage that is being charged interest. Then you can get it back again if & when you need it. Offset works by reducing the amount of interest charged on a loan. Every dollar deposited into the account means that same dollar in the loan is not charged any interest.
For example, if you have a mortgage of $100,000 and have $3500 in an offset account, your mortgage interest would be calculated on $96500. Offset facilities are tax effective because the account itself earns no interest, thereby legally minimising taxable income.
These days the name – “Professional Package” is a bit of a misnomer. They originate from the days when certain professional bodies had agreements with Banks whereby their members would receive an interest rate discount from a particular Bank. These days the Professional Packages are available to almost anyone depending on whether you qualify. Some Lenders require you borrow a minimum amount and others have certain income requirements. Essentially the loans are a variable rate loan but offered at a discounted interest rate and often with reduced application fees.
Redraw is the ability to draw back repayments that have been made over and above the minimum required. Money can only be withdrawn up to the balance the mortgage would have been at the date if only standard monthly repayments had been paid.
As an example, if you are required to pay $1000 per month but paid $1200 instead, after six months you would only be allowed to redraw the extra $1200. If used properly, a redraw facility can save you interest charges while allowing you easy access to the additional repayments.
INTRODUCTORY OR HONEYMOON RATE HOME LOANS
Introductory or honeymoon rates give the customer a special reduced rate for the first part of their loan contract. It can be either fixed or variable. It will generally revert to a standard variable rate at the end of its term.
LENDER’S MORTGAGE INSURANCE
Some loans offer the ability to put a pause on your repayments or pay reduced repayments for a fixed time while you have a baby, change jobs or travel the world. Handy to have so you can have a life and still enjoy your home.