Flexibility with your home loan is important, but can often come at a higher price
A flexible home loan is a home loan that will change according to your personal and financial situation. Life changes rapidly and financial needs are inevitable but having a home loan that evolves with you can help you meet these unexpected financial problems.
Flexible home loans also have various options for repayments which give you room for life changes, such as having kids or moving home without being financially stressed. There is greater flexibility on how to repay the loan by choosing what suits you best based on your financial capability.
Flexible home loans comparison
Rates last updated April 24th, 2017.
- Westpac Fixed Options Home Loan Premier Advantage Package - 1 Year, P&I
Comparative rate increases by 0.08%
October 10th, 2016
- Westpac Fixed Options Home Loan Premier Advantage Package - 2 Years, P&I
Interest rate is now 3.99%
November 28th, 2016
How does a flexible home loan work?
A flexible home loan is mainly aimed to help you cater for emergency financial needs or change in circumstances to your situation. When a situation arises, often you'll have a handy home loan feature to help you out. For example, sometimes you may be required to relocate within a short period of time without having sufficient time plan on how to buy a home, which is when the portability features on a home loan become useful.
There could also be situations where you are under financial pressure and need to fixed a portion of your repayments for financial stability. These type of mortgages can give you the flexibility to combine both variable interest rate and fixed interest rate when repaying it by splitting your loan. It can also give you greater flexibility to repay based on your financial capability as you settle down after buying a new home.
If having a flexible home loan is important to you, remember to compare home loans and the features that are available with them. If you're unhappy with how your home loan is now and want more features, you may want to consider refinancing to one that does. The more features your home loan has generally means it is more flexible as you can utilise the features when you need them.
What features make a flexible home loan?
A flexible home loan has its features that make it distinct from other types of home loans. Some of these features include;
- Redraw facility
This feature of a flexible home loan which gives you fast and expedient access to any additional repayments you may have made on your loan. When you’ve made additional repayments beforehand, the redraw facility allows you to regain these additional repayments. This means that in case you get more money in the middle of your repayment period, you can make additional repayments and access them later when you are in need of quick cash. Be mindful that lenders could charge a fee for accessing your redraw facility, or have a minimum amount you can access.
- Repayment holiday.
Repayment holidays allow borrowers to take a break from repayments for a certain period of time, usually about six months. These type of holidays are designed for those who are experiencing financial hardship and cannot make their repayment responsibilities temporarily. This feature can also be used as a break for the family to go on a holiday, or take a financial break.
- Accessing equity.
If your property has increased in value, then it’s likely the amount of equity held in that property would have increased too. Depending on the type of home loan you have, you may be able to access that equity freeing up some money at your disposal.
With a flexible home loan you can change the frequency of your repayments or the amount of repayments. You can decide to choose a repayment frequency based on your financial capability and needs and make it fortnightly, weekly, bi-weekly, semi-monthly or monthly. If you’re strapped for cash, you may want to consider changing your repayments to interest-only for a while, but keep in mind that you do need to pay the principal eventually.
- Extra repayments.
Just like features that help you out when you’re struggling with cash, there are features that help you when you come across some extra cash. Extra repayments allow you to make bigger repayments into your loan without penalty, but remember that there still could be break costs if you pay out your entire home loan early.
What are the types of flexible home loans?
There are different types of flexible home loans which give you the freedom to choose the one that suits you best. As a borrower, you should scrutinise thoroughly the various types of flexible home loans so as to make an informed decision;
- Variable rate home loans. These are home loans whose interest rates keep on fluctuating depending on the market changes. Meaning the borrower's repayments will change every so often, that is, they may go up or down indeterminately. Variable rate home loans often have more features compared to fixed rate home loans, which gives it it's flexible edge.
Compare a range of variable rate home loans
- Line of credit home loans. These are the type of flexible home loans that allows you to use your home loan as an overdraft. This means the lender sets a credit limit for you and you can access your funds at any time and use them the way you wish. By doing so, you only pay interest on the funds you use. You can also reduce your interest charges by depositing money into your line of credit.
Compare a range of line of credit loans
- Interest-only home loans. These are flexible home loans where you pay back the home loan on interest-only basis. This means that the total amount of interest for the whole home loan is calculated and then divided by the total number of months in the whole loan period. After settling the whole interest, you will then start paying for the principal loan amount.
Compare a range of interest-only home loans
How to compare flexible home loans
It is also important to note that not all flexible home loans are the same. There are several differences among flexible home loans meaning that you should take your time to make comparisons of these types before deciding which one to go for.
- Features. Basically these are the things that give flexible home loans the flexibility they have. When basing on this aspect of the flexible home loans you should consider such features as redraw facility, portability, top-up your existing loan, pre-approval, repayment frequency, extra repayments, repayment holiday and accessing equity.
- Interest rates. You can decide to go for variable interest rate or fixed interest rate or combined interest rate. Fixed interest rate flexible home loan is where the interest rate remains the same throughout the loan term and generally have less features. Variable interest rate is where the interest rate keeps on changing depending on the changes in the market. This changes leads to time-to-time variation in your repayments. Combined interest rate is the mixture of fixed and variable interest rates.
- Repayment style. A flexible home loan allows you to choose the repayment schedule that suits you best. For example, you can choose the repayment frequency to be weekly, fortnightly, semi-monthly or monthly. You can also decide to take a repayment holiday. Additionally, you can increase your loan repayments and finishing repaying even before the end of the loan term without penalty.
Pros and cons of flexible home loans
- The main advantage is the flexibility of repaying the loan making the home loan affordable.
- Being able to make and access your additional repayments.
- Provision of repayment holiday.
- Flexibility with your line of credit.
- Flexible home loans normally have higher repayments and annual fees.
- Generally do not come with fixed interest home loans and so are subject to interest rate movements.
Things to avoid about flexible home loans
There are certain things that you should avoid when dealing with flexible home loans;
- If you have a line of credit loan, you should not be tempted to access all your equity and spend your money on unnecessary things.
- Redraw facility – this feature of flexible home loans normally has fees. Always be careful when using it.