What Loan Features Are Right For You?
When you are choosing your home loan, there are a wide range of optional features to improve the value of your loan. However, it is important to ensure you choose features which contribute to your overall goals. Your mortgage broker or financial advisor can help you select the right goals for your needs, but it helps to do some research so you know which features are most suited for your circumstances.
Interest Only Repayments
With this feature, you only pay the interest on the loan rather than the principal for a set term at the beginning of the loan. This term could be from one to five years although it could be longer. This feature keeps your repayments low, and is suited to investors who intend to sell the property once it increases in value.
This feature enables you to make additional repayments, so you can reduce the principal of the loan more quickly, reducing the amount of interest you need to pay over the life of the loan. This is a good option for someone paying off a primary residence, as you want to pay off the loan as efficiently as possible, and save money by lowering interest payments.
An offset account is a bank account connected to your home loan. The funds in the account will offset the interest calculation against your overall loan, reducing the interest you need to pay.
This feature provides access to the funds from any extra repayments you have made. However, you do need to ensure that this feature often includes restrictions such as a redraw fee and a minimum redraw amount.
Weekly or Fortnightly Repayments
While most loans are based on monthly repayments, you can choose the option of making weekly or fortnightly repayments. This feature is suited to people who are paid on a weekly/ fortnightly basis. As you are making more regular repayments, you will reduce the loan more efficiently, reducing interest.
With this feature, you can deposit your salary directly into the mortgage account. This is a good option for someone who is not disciplined at making repayments independently.
This feature enables you to take a “holiday” from your mortgage responsibilities by either reducing or stopping repayments for a set period. This is a useful feature if you anticipate an interruption to your income, such as a change of job, illness or maternity leave. However, interest will accumulate during your “holiday” adding to the overall cost of your loan, so this feature should only be used in times of real need.
This feature gives you the convenience of automatic withdrawal of your repayments from a nominated bank account. You only need to monitor the balance of your bank account to ensure you can cover the repayments.
All in one home loan
An all-in-one home loan is combined with a cheque, savings and credit card account. This gives you the option of having your salary paid directly into the account, and the available cash in your account offsets your mortgage, reducing your interest charges. However, this option requires a great deal of financial discipline to ensure you continue to make the required mortgage payments.
Once you find the right home loan package, you might want to keep all the same features and benefits. The loan portability feature enables you to sell a property and then transfer the loan to another property. This will also save you set up fees, as well as saving you the time and effort of setting up a new loan, although there may be other fees.
Choosing the right loan features for your circumstances can make a huge difference to how quickly you pay off your home loan. Ask your mortgage broker what other loan features might be right for your real estate goals.