There are lots of different features and benefits to consider when you’re choosing a suitable home loan for you. .
A 100% offset account is a savings account linked to a loan account. No interest is paid to the offset account but instead the balance of your offset account is deducted from your loan account before the interest on your home loan is calculated. Therefore less interest is charged to your loan.
- Savings interest is taxable, but because your offset account balance is used instead to reduce your loan interest, no tax is payable, so you are effectively reducing your tax bill.
- The interest rate on your offset account is the same as that applied to your loan account. This is a great rate and is much higher than you could earn on most savings accounts. The interest rate moves with your loan account rate ensuring you get maximum benefit from every dollar in your offset account.
- You may have higher monthly fees attached to the account.
- You may need a minimum balance in the account to benefit.
Professional packages are generally only available on home loan amounts over a certain value. Usually, the greater the loan amount the more likely the lender will be to offer additional discounting on the interest rate.
- Interest rate discount
- May include discounts on other banking products
- Borrower may not need the additional services offered
- Borrower may be financially better off with a basic variable loan
The questions below will help you decide the features you need, which should in turn guide you to the home loan that suits your needs. When answering the questions, think ahead, not just until next year but also to 5 or even 10 years down the track. It’s important to be realistic in your answers. Ask yourself the following questions:
- Do I want to pay the loan off as quickly as possible or am I happy to see out the term of the loan?
- Am I good at sticking to a budget or am I a spendthrift?
- Do I require certainty in the amount of my loan repayments or am I happy for them to fluctuate with official interest rate movements?
- Am I likely to want to draw back some of my repayments in the future for spending on holidays, cars, furniture, etc?
- If I am planning on having children, how will this affect mine or my partner’s work situation?
- For existing children, have I adequately budgeted for school fees and other expenses that are likely to come up in the future?
- Am I likely to receive some form of cash windfall or bonus at any stage?
- How secure is my employment or work situation?
These answers will assist you in clarifying your goals, which will in turn help us work through the different loan options and arrive at the one that suits you.
Depending upon your answers to the above questions, you will need to seek a number of loan features that are specific to your situation. Some of the more common loan features available are outlined below.
1. Additional repayments
These are payments that you make which are above the standard repayment for your loan. So for example, a $300,000 loan with a 7% interest rate requires a monthly repayment of $2,120. If you want to pay the loan off quickly and reduce the interest bill, you might make monthly payments of $2,500, which would include an extra repayment of $380.
2. Direct salary credit
Allows your salary to be paid directly into your home loan account. This is an advantage if you are not a disciplined saver.
3. Loan portability
Allows you to take an existing loan to a different property when you move. (Saves you on Mortgage Stamp Duty).
4. Offset account
This is a separate account that is attached to a loan account. The balance of the offset account is deducted from the balance owing on the loan account when calculating the daily interest charge. For example, a borrower with a $300,000 mortgage and $10,000 in an offset account will only be charged interest on $290,000 and not $300,000. Some products do not offer 100% offset, while others may require a minimum balance in the account before the offset applies.
5. Redraw facility
Allows borrowers to access extra payments that have been made. This money can then be used for a variety of purposes including a holiday, furniture or car. Some lenders have a minimum redraw amount and may also charge a fee per redraw.
6. Repayment holiday
This feature offers a complete holiday from repayments or a period of reduced repayments. This can be especially useful during career changes or breaks such as maternity leave.
7. Switch to fixed rate
Allows the borrower to switch from a variable to a fixed rate loan.
Allows a borrower to increase the limit on a home loan, using the equity in your property for other needs (e.g. renovations).