Russell Ward Finance Writer
A home loan can be one of the biggest financial commitments to make in your lifetime. It therefore makes sense to understand the features and benefits of a home loan to find one that best suits your priorities and goals. To decide on the right loan for your property needs, ask yourself these important questions.
Will you pay principal and interest or the interest only?
A home loan is typically provided as a principal and interest loan – you make regular payments against the amount borrowed (the principal) plus the interest over the term of the loan. You may also opt for an interest-only loan where the amount you repay only covers the interest on the loan. While only paying the interest can be costly, as you never reduce the principal amount which the interest is tied to, it can provide you with greater flexibility.
Do you want a fixed or variable interest rate?
Home loans can have a fixed interest rate (one that stays the same over a set period) or a variable interest rate (one that can move up or down based on rate changes). For some people, the certainty that comes with a fixed rate is important in terms of knowing what your repayments will be over a certain period. Others prefer the flexibility of a variable rate home loan and the features that can apply to these loans, including no establishment fees, interest only options, plus redraw facilities.
Would an offset account suit you best?
By depositing your money into an offset savings or transaction account linked to your home loan, you can reduce the interest you owe on your mortgage. Simply put, the deposited money is offset against the outstanding home loan amount, meaning interest is only calculated on the difference between your home loan balance and your offset account balance.
Does the loan have extras?
Some loans have additional features and benefits that can match your needs. A loan repayment pause allows you take a break in repayments, while an eco-pause gives you the option to redirect funds for the purpose of environmental home upgrades, such as installing water and/or energy saving devices. Bridging loans can be valuable for helping you get into your new home before your existing home sells and settles, while loan portability is a feature that allows you to move your loan from one property to another.
Do you want to make additional repayments and redraw?
Making extra repayments, without penalty, can reduce the length of your loan and lessen the amount of interest you pay. And if you’ve made any additional repayments on your mortgage, you might want to draw back some of those repayments in the future for spending on holidays or cars. If so, choosing a loan with a redraw facility can help, as you’ll be able to withdraw these payments when necessary and reduce the interest payable by putting the extra money into your loan account.
To talk to us about how we can support your home loan needs, please visit one of our branches or give us a call on 132 888.
About the author
Russell Ward is a professional business writer who has been published in The Huffington Post, The Telegraph, CEO Magazine, Global Living, Mamamia and Thought Catalog.
Please note that this article is not financial product advice and does not take into account any person’s individual objectives, financial circumstances or needs.