What Features Should I Look For In A Home Loan?

 

Are you in the market for a new property? Choosing a mortgage has become more and more difficult as the lending industry becomes increasingly competitive and complex. 

Home loans are just like any other product you buy. There are basic home loans that are cheap because they have the basics and nothing more, and then there are full feature home loans that come with the added extras which you may pay a premium for.

Many people, especially first homebuyers become confused and overwhelmed by the huge array of home loans available. They are often left feeling puzzled and unable to make an informed decision. To overcome this, you'll need to make a loan transparent, and understand all the costs and benefits before choosing.

A home loan is a long term investment so it’s very important to compare your options with each loan. Here are some of the features that can separate a good loan from a great loan:

Offset Account

An offset account is basically a bank account attached to your home loan that can help you reduce the amount of interest you pay on your loan. The difference between an offset account and a regular transaction account is that any money you carry in the account is offset against your home loan balance. This means you can pay less interest on your home loan while still having easy access to your money. For instance, if you have a home loan for $300,000 and you have $10,000 sitting in your offset account, you will only pay interest on $290,000 of your home loan. You can get the best results from this by having your salary deposited into the account.

Flexible Repayments

Having the capacity to choose how often you make your repayments on a home loan means you can match your repayments to your pay cycle, which can help give you greater control of your finances. Most home loans will allow you to choose weekly, fortnightly or monthly repayments. Interest only loans work off monthly repayments. By taking your monthly repayment amount and splitting it to pay fortnightly or weekly, you’ll pay more off the loan each year. For instance, if you have a $2000 monthly repayment and you pay $500 a week instead, you’ll pay back $26,000 rather than $24,00 over the period of a year. Over the life of a home loan, this will mean significant savings for you in interest.

Free Extra Repayments

At some point during your life whilst repaying your home loan, you may find yourself coming into some unexpected money. Having the option to put this money towards your mortgage, on top of you already regular repayments, can help you save on interest and pay off your loan faster. Variable rate loans generally don’t have limits on the amount of extra repayments you can make over the loan term. However, if you do opt for a fixed rate loan, there may be annual or loan term limits on extra repayments.

Repayment Holiday

If at some point during your loan term you need a break from making your repayments, a repayment holiday is a great feature to acquire on your loan. Perhaps your partner is going on parental leave and you’ve only got one income to survive on for a period, or you may just need to direct your cash elsewhere. Although be aware, there may be some conditions around this. For example, you may only be able to take a repayment holiday of between 3-12 months if you’ve made enough additional repayments.

Redraw Facility

As well as letting you make additional repayments, some home loans will also let you redraw these repayments if you need the cash. Not only does this reduce your interest repayments but will also provide you with a ready reserve of funds should you need them in the future.

If you're unsure that you can find the best deal without advice, then you might consider using a broker. For more information on how to do this, contact us and we can help you get in touch with our excellent financial whiz – Nicole Palazzi.