In this article:
Buying a home is a milestone moment in anyone’s life, but there’s always going to be more to it than just finding the right property. How you finance the purchase is one of the trickier aspects to navigate, particularly as a first home buyer. One key consideration when trawling the internet to learn about mortgages is loan features.
Loan features refer to the specific attributes and options associated with a mortgage that can significantly affect your borrowing experience and cost. These can include elements such as the interest rate type (fixed or variable), repayment flexibility, and the availability of offset accounts or redraw facilities.
Understanding loan features is crucial because they can influence not only your monthly payments but also your ability to pay off the loan early or manage financial challenges throughout the life of the mortgage.
Let’s take a look at some essential features to consider on your property journey:
1. Interest Rates
Interest rates are one of the most crucial factors to consider when taking out a loan. It determines how much money you will have to pay back in addition to the principal amount borrowed. Here are the common types:
- Fixed interest rates remain the same throughout the life of the loan, offering stability and predictability in monthly payments.
- Variable interest rates fluctuate based on market conditions. While it may start lower than a fixed rate, it can increase over time, affecting your monthly payments.
- A split loan lets you divide your mortgage into fixed and variable portions. This way, you can enjoy the stability of a fixed rate while taking advantage of potential interest rate drops with a variable rate.
2. Offset Accounts
An offset account is a transaction account linked to your home loan. The balance in this account offsets the amount you owe on your mortgage, reducing the interest you pay.
For example, if you have a $300,000 mortgage and $50,000 in your offset account, you’ll only pay interest on $250,000. This can lead to substantial savings over the life of your loan.
Offset accounts are beneficial for reducing interest payments and helping you repay your loan faster. They also provide easy access to your funds, offering both flexibility and savings.
3. Redraw Facility
A redraw facility allows you to access extra payments you’ve made on your home loan. This feature offers flexibility, enabling you to use these funds for unexpected expenses or investment opportunities.
If you’ve made additional repayments on your mortgage, those funds can be made available for withdrawal through a redraw facility. As with any loan feature, a redraw facility can have fees or conditions associated with it, and each lender/product varies as to the potential costs associated.
4. Repayment Flexibility
If you’re big on budgeting, spreadsheets, or just being in control of your finances, the thought of being able to change your repayment frequency might be very enticing. Some loans come with the ability to adjust your repayment schedule according to your financial situation. This can include changing the frequency of payments.
Many lenders allow you to choose between weekly, fortnightly, or monthly repayments. Some may also offer the option to temporarily reduce your repayment amount if you’re facing financial hardship.
5. Extra Repayments
No this is not the same as repayment flexibility. Extra repayments are additional payments you make on top of your regular mortgage payments. Some loans allow you to make these additional repayments without incurring extra fees, whereas others require you to pay a fee, and some loans simply don’t allow it.
By making extra repayments, you can reduce the principal amount of your loan faster, which in turn reduces the interest you pay over the life of the loan, so this can be a really important feature for some borrowers to keep an eye out for when considering a particular lender or loan.
6. Repayment Holidays
A repayment holiday is a temporary pause in your mortgage repayments, usually allowed during times of financial hardship or significant life changes. Lenders may offer repayment holidays for a few months to several years, depending on the terms of your loan, eligibility criteria and your circumstances.
7. Loan Portability
Loan portability allows you to transfer your existing home loan to a new property without needing to refinance. This can save you time and money in fees, making it easier to upgrade or downsize your home.
When you sell your current home and buy a new one, loan portability lets you keep your existing loan terms and conditions, avoiding the hassle of applying for a new loan.
8. Digital Experience
Convenience matters. In today’s digital age, having a seamless online banking experience is crucial. For someone who lives on their phone, or if you’re looking for simplicity, a lender that offers a robust digital platform, a great mobile app, and a proven record of security may be another key feature to keep an eye out for.
The Documents and other Stuff
Reading loan documents is not easy and only some of us find it fun, but understanding these home loan features can empower you to choose a loan that aligns with your financial situation and long-term goals. Whether you’re a first-time buyer or looking to refinance, being informed about your options ensures you make the best decision possible.
Take the time to read and understand the terms of your loan to identify loan options that work for you, rather than committing to a loan with features that fail to meet your needs in the long run.
And don’t stress if you’re struggling. Instead of assuming a loan contract has the features for you, contact someone with the experience necessary to help you analyse the loan docs and understand what you’re really committing to – your financial future is worth the effort.
Ready to take the next step? Contact our home loan experts today to explore the best loan features for your needs. Your dream home is closer than you think!
