- Work out what you want in your loan
- Get the loan to suit your needs
- Simplicity of management?
- Payment flexibility?
- Accessing equity?
- Payment frequency?
- Relief features?
- Talk to us to understand more
Some of the more common loan features available are outlined below.
- Fixed or variable rate?
- All-in-one loan
- 100% offset account
- Redraw facility
- Professional home loan packages
- Weekly or fortnightly repayments
- Extra repayments
- Direct salary credit
- Loan portability
- Repayment holiday
- Interest-only loan
- Income protection
Fixed or variable rate?
This decision is entirely dependent upon your own requirements for certainty of repayments. Nobody, not even the experts, can predict precisely whether interest rates will rise or fall or for how long.
If you choose a fixed interest rate, then you have certainty of your repayments, and you will benefit from not having to pay more if interest rates rise; conversely, if interest rates drop, you will still be paying the fixed rate.
Fixed rate loans may come with some restrictions on extra payment amounts and costs if you want to switch to a variable interest rate. You can also split your loan if you want to hedge your bets, with a portion of your loan being fixed and the other variable.
Statistically, most people have a variable interest rate, which do most often prove cheaper over the life of your loan.
This is where your loan, savings and cheque account are combined into the one home loan. With this loan account, all of your wages and any other cash payments are deposited into it. The extra cash in your account reduces the principal amount owing and thereby the amount of interest charged. You can access the funds you have left over and above the minimum monthly repayment amount to pay your monthly expenses.
These accounts usually have a credit card linked to them, with your credit card balance at the end of each month being paid off (drawn down) from the all-in-one account.
- The benefit of this account is that all of your other standard transactions such as ATM withdrawals and direct debits are also managed through the account so that you don't need another bank account
- This can be an effective way of using the interest-free period on your credit card each month
- This account offers flexibility and simplicity of management
- Check the interest rate applicable for this feature and any other conditions applicable.
100% offset account
If you want to pay off your home loan sooner, then using an Offset account is quick, simple and effective option to do this
An Offset account is simply a regular savings account linked to your 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.
Eg: If you have a $200,000 mortgage and $20,000 in your offset savings account.
- The principal on the $200,000 loan is reduced by the $20,000 in your offset account
- As a result interest only accumulates on the $180,000 balance of the loan
- Repayments continue to be made on the entire $200,000 loan at the applicable interest
- Savings in your offset account actively work to reduce the loan principal, and your loan repayments are working more effectively to reduce your principal loan amount and the interest it attracts. This means that over a number of years, both the principal and interest on your loan are repaid faster, and you build up equity sooner.
- The interest rate applied to your Offset account is usually the same as your home loan rate, which can be higher than a standard savings account interest rate, and moves up with the movement in interest rates, hence maximising the returns from your savings account.
- The interest amount you make on your savings is normally a taxable income, 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.
A redraw facility is commonly used, as it allows you to make additional repayments into your loan account. The two main benefits of the redraw facility are:
- As you make extra repayments, this reduces the amount of the principal loan amount, therefore you pay less in interest costs.
- It provides you with great flexibility, allowing you to access the extra funds you have paid when you need it.
Most loans offer this feature (except the most basic variable home loans), and this feature works best for you if you want to redraw against your extra payments infrequently. Each lender has different specifications of use, therefore you can find out the following answers to suit your redraw needs:
- Is there an activation fee to set up this feature?
- How many redraws can you make per year? Is there a cost for more?
- What is the minimum or maximum amount you can redraw? (normally the maximum is whatever you have paid extra)
Professional home loan packages
Professional packages are generally offered on home loan amounts over a certain (higher) value. Whilst originally designed for high-value clients such as professionals, the loan is available to anybody who takes a loan over a particular value (eg $250,000). Note this varies from lender to lender. Usually, the greater the loan amount the more likely the lender will be to offer additional features or benefits, such as lower interest rate and discounts on other lender products.
Note that just because you may be eligible for a professional package, you may not need all of the services offered and may be just as well off on a more basic loan offer.
- Generally offer a discount on the standard variable rate
- Offer additional features such as line of credit products
- Can also receive discount on other services offered by the lenders
- Usually an annual fee applies to the loan
- May be able to get a better rate of interest on basic variable loan
Weekly or fortnightly repayments
Most loans repayments are due monthly but some lenders allow you to pay them fortnightly or weekly. This can save you quite a bit in the long run. That's because interest on home loans is calculated daily, so the more often you pay off a bit of the principal, the less interest you'll pay over the long term.
Use our calculators to see how you can save by paying more frequently.
In addition to regular repayments, some loans allow you to pay off a lump sum when and if you can. This will help you pay your loan off sooner and save interest costs in the long term.
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. See All-in-one Account.
Allows you to take an existing loan to a different property when you move, saving you on some loan establishment fees and stamp duty payable on the new mortgage.
Allows you to have a complete holiday from repayments or reduced repayments for a period of time. This is ideal if considering a career change, long holiday or for maternity leave.
Allows you to increase the limit on your home loan, using the equity in your property for other needs (e.g. renovations).
This feature allows you to pay off only the interest part of the loan i.e. none of the principal amount is being paid off.
Because you aren't paying off any of the principal it will mean that your regular repayments are lower, but you'll probably pay a bit more interest in the long term. This can be handy during the early years of your loan because the reduced repayments can make the adjustment to a mortgage a little easier.
Investors also tend to like this type of loan, because you only need to pay off the principal when the property is sold.
Income protection insurance cuts the risk against sudden income loss. If you are concerned about this possibility, then speak with your Time Finance Mortgage Broker who will be able to assist you arrange this.
Request a free appointment - No charge, no obligation and at a time and place that suits you.