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A home loan can be much more than just the finance to buy a home for you and your family. The best Australian home loans offer a range of features which can make it easier to handle your repayments, easier to manage your cash flow and make it possible to save on interest charges without even trying. Of course as you start adding home loan features, you can start attracting fees. If you choose only the home loan features you need, the benefits will outweigh any costs.
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Tips from the industry experts on selecting a home loan
Common home loan features you can choose
While every lender and every type of loan will offer different features there are some common home loan features which can be very affordable and very effective at helping you manage your mortgage. Find out more now about the benefits of making additional repayments and how to get those payments back if you need them, how to have your savings working for you against your loan and how to choose a loan portability feature which will give you flexibility if you want to transfer your loan to another property.
Any additional repayments go towards the principal amount of your loan. If you look at the breakdown of your monthly home loan repayments you will see that the majority of that repayment will go towards paying interest and only a small amount goes towards paying down your loan. However additional repayments you make to your loan go directly to paying off your principal amount and mean that you can repay your loan sooner. For example if you paid just $50 extra per month on a $300,000 loan you could save over $23,000 in interest over the your 30 year term and reduce the term by two years.
Are you able to easily and regularly make additional repayments? Some loans, especially fixed rate loans, will charge penalties for additional repayments made, or even restrict or disallow them altogether. This is why it's important to know if you'll be able to contribute more money towards your home loan regularly, as this will call for a home loan which includes free additional repayments.
If you need to access your additional repayments, a redraw facility will allow you to withdraw amounts you have paid as additional repayments to use as you choose. You may need to cover a bill or want to use some of the additional repayments you've made for a renovation or a holiday. The redraw feature is not allowing you to access any equity you have built in your home loan as the value of your home has increased, but simply gives you access to your own payments.
Redraw features can be conditional. If you want to make additional repayments you should plan for an affordable redraw feature, because you never know when you may need those extra repayments back. Make sure that the redraw feature on the loan you choose does not charge you to withdraw funds and does not have unreasonable minimum or maximum redraw amounts. Some redraw facilities may even limit the number of redraws you can make in a year, or have a minimum amount per transaction.
This allows your savings to save you interest. With a savings account you earn interest, however when you earn interest it's classified as income and taxed. A savings account that earns you interest doesn't make financial sense if you have a home loan which is charging you more. Instead you can deposit your savings into an offset account linked to your loan and the amount in the account reduces the amount of interest you pay on your loan each month.
This means that 100% of the savings in your offset account are working at the same rate of interest as your home loan. For example if you have a home loan of $300,000 and you have $10,000 in your offset account, each month you will only be paying interest on $290,000 of your home loan because your savings have offset the amount.
Home loan portability:
Allows you to keep your loan when you change your home. Just as your needs are likely to change over the 30 years term of your home loan, you're just as likely to move to a different property. If your loan has a portability feature you can keep the same loan you have and transfer it to your new property. This means you maintained a relationship with your lender and could save by not having to pay establishment or application fees.
There may be fees for a loan portability feature. When you transfer a loan from your old home to your new home you may have to pay a security substitution fee which can be around $500. You may also need to pay a mortgage registration fee, valuation charges and fees for transferring the new loan so these fees can sometimes add up to just as much as the costs of refinancing. Make sure if you're planning to make use of the portability feature on your loan that it'll be affordable.
finder.com.au offers you a range of reviews and easy to understand advice to help you choose the home loan features that you need and want. You can start your home loan search by comparing home loans today.