Whether you’re upgrading to a bigger house or just refinancing, you may need more from your second home loan than your first.
When people look for a home loan to purchase their first property, their primary concerns are generally affordability and accessibility. If the loan is a good price and they qualify, that’s often enough to keep a first-time buyer happy. Understanding exactly how the loan works can be something of an afterthought.
When the time comes to take out your next loan, you will be more aware of precisely what features you are looking for. You might be upgrading to a bigger property or looking to refinance. Whatever the reason, you’ll probably be searching for a loan that provides more options and flexibility. Here are five essential features you should ensure are included in your next home loan:
1. Offset accounts
First-home buyer loans often focus on the bare essentials. They sometimes eschew fancy features for the sake of a lower rate or fees. However, some of these inclusions are well worth the extra cost, because they can save you tens or even hundreds of thousands of dollars in the long run.
An offset account is one such feature. It allows you to save thousands in interest over the life of your loan, and potentially pay off your home loan years ahead of schedule.
An offset account is a transaction account linked to your home loan. It works by deducting the amount on which interest is calculated by the amount of funds in the account. For example, if you have a $500,000 home loan and $50,000 in an offset account, you’ll only be charged interest on $450,000. Your repayment amount won’t change, but what will change is the proportion of your repayment going toward the principal. This mean you’ll pay down your home loan debt faster.
Offset accounts sometimes come with associated account-keeping fees, or form part of home loans that carry a slightly higher interest rate. But there are still some incredibly competitive deals. When you weigh up the impact it can have on the amount of interest you end up paying, an offset account is well worth looking for in your next home loan.
2. Flexible repayments
When searching for your next home loan, choose one that has the flexibility to fit your lifestyle.
Since you now have the experience of making repayments associated with your first home loan, you will have a better idea of the kind of repayment schedule that would work best for you.
For instance, you might want a product that offers flexibility with repayments, perhaps one that offers the ability to make additional repayments. It’s wise to get ahead on your home loan if you can, and helps you breathe a little easier. Building up a repayment buffer could be a lifesaver if you ever find yourself facing financial hardship.
On the other hand, you may want the option of being able to take a break from repayments if a major life event makes it difficult to meet your obligations.
A home loan that allows you to schedule repayments around your pay periods can also be beneficial. If you get paid fortnightly, a home loan that allows fortnightly repayments could be a great option. It also has the benefit that fortnightly repayments allow you to pay off your home loan faster.
You should also consider a loan that includes a redraw account. This allows you to withdraw any additional funds you’ve paid should you need to use them for any purpose.
3. Option to split
When you selected your first home loan, one of the major choices you would have faced would have been whether to go with a variable or fixed rate. The good news is that for your next home loan, you don’t have to choose.
A home loan with a split facility means you can split the loan into variable and fixed-rate portions. This means part of the loan offers you the flexibility and features common to a variable-rate home loan, while part of it provides the certainty and security of a fixed rate.
Some lenders offer multiple splits, which allows you to take advantage of the rates and features from several products offered by that lender.
When you bought your first home, you probably weren’t looking ahead to the time when you would need to move on to a larger property, because your family had grown and your requirements had changed.
When you choose your next home loan, do so with an eye to the future. Your next house may not be your last, and if you move again, it’s handy to have a home loan that can move with you.
Portability allows you to transfer your home loan from one house to another. This is an incredibly handy feature, because it saves you the time and money it takes to refinance an entirely new loan.
You may well be intending to stay in the home you’re moving to for the rest of your life. However, choosing a home loan that’s portable means you’re prepared for any contingency.
5. Easy access
If your first home loan was a basic, no-frills agreement that focused on rate rather than features, odds are it was fairly “set and forget”. To get the most out of your next loan, you need to take charge.
Helpful features such as an offset and redraw account need to be easily accessible, so make sure you have easy online access to your loan.
Online banking will allow you to keep tabs on and manage your home loan. Depending on your preference, you might want a loan that comes with phone banking. Or, if you prefer a personal touch, look for a lender that has an extensive branch network so you can speak to someone face to face.
Whichever platform you favour, make sure your next home loan offers easy access so you can stay in control.
Use your experience
Selecting and managing your first home loan is usually a learning experience. When you look for your next loan, you can use the lessons you have learned to find one that does everything you need it to do.
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