The Best Home Loan Features

Home Loan Features

Choosing the right home loan features or options along with a good interest rate will help you save money and pay off your mortgage quickly. Find out here what features are available in the market.

How to consider home loan features for your lifestyle

Home loan features should be considered in the context of your life over at least the next five years. It sounds like a long time to a lot of people, but when you consider why, it makes sense:

• Is the loan for an investment or a private home?
• Is your objective to pay off the loan as quickly as possible?
• Are you disciplined and good at sticking to a budget?
• How much margin do you have in your monthly spending (to account for, say, an interest-rate rise)?
• Are you likely to get any kind of incremental bonus or financial windfalls in the future? Are you planning on having a baby or increasing your family dependency in the next five years?
• How will your family situation affect your income and expenditure?

Most people know the answer to these questions and if you don't, you can only act on what you know right now and that should give you enough guidance to decide the level of flexibility you need with a home loan without paying for features you don't need. The most common loan features are outlined here.

Flexibility might mean higher interest rates

Typically, the more flexible the loan, the more interest you'll pay. For instance, a variable loan which allows you to re-draw against extra repayments or offset savings against the mortgage will generally have a higher rate than a basic loan. But it may be that this kind of loan is far better for you if you need the flexibility.

Can you make additional repayments?

If you are likely to have extra cash at any time, make sure your home loan has additional repayment features that allow you to use that cash to reduce the outstanding principal and interest. Don't leave dollars sitting in a savings account when every dollar you pay off your home loan is working twice as hard as a dollar saved in the bank (roughly, you may get 3-5% interest on savings, but a loan is costing you 6.5-7.9%). If you are concerned about being able to access the extra funds you pay into your loan, don't be. Most standard variable loans allow you to take back those extra payments via redraw facilities if needed.

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Offset Accounts

An offset account is simply a separate (savings) account attached to your loan account. Look for lenders who offer 100% offset. Be aware that some lenders require a minimum balance to be in your account before the offset applies. Your offset account balance is subtracted from the outstanding home loan principal when calculating the daily interest charges. For example, if you have a $300,000 mortgage and $20,000 in your offset savings account, you will only be charged interest on $280,000 even though your "loan balance" is $300,000. From a taxation perspective, interest paid to your savings account is taxable, but the same interest used to offset home loan interest is not, so you effectively save tax and reduce your home loan at the same time.

Redraw facility

A redraw facility allows you to access additional repayments you have made. The money can be used for pretty much whatever you like without having to explain or apply for it. Many lenders have a minimum redraw amount and a fee every time you use it.

Salary Credit (Direct)

This feature allows you to pay your salary directly into your home loan account. With interest calculated daily, this effectively reduces the principal amount owing for the time your salary is in the account, thereby reducing the amount of interest paid.

Switching (to Fixed Rate)

Switching allows you to switch from a variable to a fixed rate. This can be a good option if, for instance, you are not sure what rates are going to do.

Portable Loan

A portable home loan allows you to take an existing loan to another property without having to refinance, ie. pay out the old loan and take out a new one. This can save application and legal fees.

Repayment Holiday

Many lenders now offer either full or partial repayment "holidays" for periods of time. They can be useful if, for instance, you find yourself taking time off work in a career change or building a family.

Top Up

This feature allows you to increase the limit on your home loan.

Construction Loans - a note

While a construction loan is really a standard home loan, not all the features available on the product you choose will be available during the construction phase. Two examples of this are redraw and payment frequency. During construction, you cannot use redraw, and interest is typically paid monthly on an interest-only basis. When the house is complete, all features of the loan become available.