The top 5 home loan features when investing in property

Rates and Fees verified correct on December 6th, 2016

Top 5 investment home loan featuresYour investment could get you a better return with these home loan features

With a plethora of competing lenders and home loan packages to choose from, selecting your home loan can be a difficult process. That’s why we’ve put together a comprehensive list of ‘must-have’ home loan features that every investor must consider before buying a property.

Observe these five features of home loans and you’ll be on your way to making informed decisions that will help you maximise your returns and reduce your tax liability.

1. Interest only repayments

What are interest-only repayments?

Interest-only repayments  require you to repay only the interest portion of your loan, allowing you to pay less each month than a standard principal and interest (P&I) loan. If you’re investing in property, interest only repayments  enable you to minimise your mortgage repayments in the short-term, while your property ideally increases in value in the long term.

For example, if you owned a property worth $360 000 with a $300 000 interest only loan at 7%, then your monthly repayments would be $404 per week. If you made principal and interest (P&I) repayments on the same loan, your  monthly repayments would rise to  $534.

Are there any risks with making interest-only repayments?

Interest-only repayments can be risky because you’re making no progress on your overall mortgage. You should  realise that if you’re making interest only repayments, you’re not meeting your  overall borrowing commitments, as no principal is being paid.

In the above scenario, after five years, you’ll still owe $300 000 on the property if you take out an interest only loan. However, with a standard P&I mortgage, after five years you have reduced the balance of your loan by $50 000.

However, investors that have good financial management can benefit from the flexibility from interest-only loans because it allows you to make principal repayments even when the loan is interest-only, while still giving them the cash flow benefits of interest only repayments.

2. Low Rate

As the property may be one of your most valuable investments, a low rate loan could help you to pay off your mortgage sooner. However, it is important to realise that low rate home loans have distinct features and benefits compared to other home loan categories.

Features of low rate home loans

  • Less interest: As the name suggests, loans with low interest rates can save you money on repayments.
  • Variable interest: A low rate loan will normally charge a variable rate which means that the rate is susceptible to fluctuation as your lender may raise their standard variable rates.
  • Less features: Lenders can afford to offer low rates because these loans don’t usually have many other features, such as a redraw facility or an offset account.

Why choose a low rate?

  • Lower repayments: A lower interest rate means lower repayments, which is useful if you’re a first time investor or trying to keep costs down. A lower rate also makes it easier to pay more than the minimum repayments.
  • Less impact from official rate rises: Even though most low rate loans have a variable rate, if your interest rate is low to begin with, then it will take longer for rate changes to affect you.
  • Easy to manage: A low rate loan with basic features can be beneficial as you don’t have a range of loan features to consider when making your decision.
More: Compare mortgages with competitive rates.

3. Offset account

What is an offset account?

An offset account is like a regular transaction account that is added to your mortgage account. You can deposit funds into this account at any time and withdraw them again via ATMs and EFTPOS transactions.

Each dollar kept in this account ‘offsets’ the amount of interest you pay on your mortgage. For instance, if you have a 100% offset account with $10 000 in it and your mortgage balance is $300 000, your interest charges are calculated on the balance of $290 000.

As we mentioned above, reduction in interest can shorten your loan term, as you’ll be able to pay your loan off sooner.

More: Check out our offset home loan calculator to find out how much an offset account could save you

If you link an offset account to your mortgage and arrange to have your salary or any other income you receive paid into it, you can reduce your mortgage balance faster. This is because interest on your loan is calculated daily, so every day you have funds in your offset account will contribute towards reducing the total interest payable.

Are there any risks with offset accounts?

  • Higher interest: Offset accounts are usually offered on full featured home loans that can include higher interest rates.
  • Additional fees: The offset account may have a monthly account-keeping fee.
  • Understand the differences: Ensure you know the difference between a partial offset account and a 100% offset account. A partial offset account will only offset a percentage of the balance in your offer account, not the full amount.

4. No ongoing fee

What is an ongoing fee?

When combined with the right features, home loans with no ongoing fees are a great option for savvy investors. These types of loans reduce the cost of your loan while often providing competitive rates that enable you to manage your repayments more effectively.

Loans with no ongoing fees allow you to pay your costs upfront, such as application fees, without having to worry about having to manage ongoing fees throughout your loan period.

Typically, many lenders will charge ongoing monthly fees to maintain your home loan account or to pay for extra features like 100% offset accounts.  Package loans, which bundle your home loan with a credit card and savings account from the same lender also tend to charge ongoing annual fees which cost between $200 - $500.

To compare home loans with no ongoing fees, try to identify what ongoing fees are being omitted. For example, a lender might waive monthly or annual fees, but still charge additional fees for a redraw facility which could impact the overall cost of your loan.

More: Compare home loans with no ongoing fees in the table below by sorting using the table headings.Ongoing fees table

5. No application fee

As the name implies, home loans with no application fees are those which charge $0 application fee. These loans may not have application fees for the following reasons;

  • Promotions: The lender may have waived the application fee to gain new customers for a special promotion.
  • Packaged home loans: Lenders will waive application fees on these types of loans but instead will charge an annual fee.
  • Basic home loans: These loans generally have less features with lower fees.

The application fee is charged by the lender to cover the costs associated with processing your application. This fee can range between $200 to $1000 depending on the provider and type of  home loan. Finding loans with no application fees is beneficial because it allows you to set money aside for more important expenses.

Which home loans don’t charge an application fee?

The good news is that there are various types of home loans that don’t include applications fees, including;

  • Full featured home loans: These types of loan offer various features such as offset accounts, and often charge $0 application fees as part of a promotional offer.
  • Packaged home loans: These loans bundle a borrower’s home loan, transaction account and credit card together. This comes with the benefit of netting you interest rate discounts and waivers on fees. Generally, these home loans will charge an annual fee that can range between $150-$500.
  • Basic home loans: Most basic loans will have minimal features and will offset this by offering low fees and interest rates. Generally, the first rate which is discounted or waived for basic loan packages is the application fee.

Compare home loans with no application fees by using the table below.

Compare investment home loans

Rates last updated December 6th, 2016
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
3.89% 3.89% $0 $0 p.a. 80% Go to site More info
NAB Choice Package Fixed Rate Home Loan - 3 Years (Investor)
Lock in your interest rate on your investment purchase for 3 years and enjoy the benefits of a package home loan. 250,000 Velocity Frequent Flyer point offer, conditions apply.
3.89% 4.95% $0 $395 p.a. 90% Go to site More info
Greater Bank Ultimate Home Loan - Discounted 5 Year Fixed ($150K+ Investor)
A discounted 5 years fixed rate with a redraw facility and no application fee.
4.09% 4.55% $0 $375 p.a. 85% Go to site More info
ClickLoans The Online Investor Home Loan - LVR <70%
An investment home loan with competitive rate and 100% offset account.
3.79% 3.79% $0 $0 p.a. 70% Go to site More info
Greater Bank Great Rate Home Loan - Discounted 1 Year Fixed ($150K+ Investor)
Lock in your interest rate for 1 year and pay no application or ongoing fees.
3.79% 4.38% $0 $0 p.a. 85% Go to site More info
Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed ($150K+ Investor)
Lock in your interest rate for 1 year when you borrow over $150000 for your investment property.
3.59% 4.55% $0 $375 p.a. 85% Go to site More info
CUA Kick Start Variable Home Loan - 2 Years Introductory (New Investment Only)
Enjoy a 2 year introductory rate with CUA Kickstart Variable Home Loan.
3.69% 4.28% $600 $0 p.a. 90% Go to site More info
State Custodians Line Of Credit Loan Spring Special - LVR  <=80% (Investor)
Access the equity in order to further your investment opportunities.
3.99% 4.32% $0 $299 p.a. 80% Go to site More info
Switzer Investment Loan
An investment loan with no application or ongoing fees, and your very own lending service manager.
4.09% 4.09% $0 $0 p.a. 80% Go to site More info
Australian Unity Wealth Builder Investor Package Home Loan - Variable
An investment loan with no ongoing fees and borrow up to 90% LVR.
4.19% 4.22% $600 $0 p.a. 90% Go to site More info
NAB Base Variable Rate Home Loan - Investor (P&I)
A no frills home loan for an investor who doesn't want any bells and whistles. 250,000 Velocity Frequent Flyer point offer, conditions apply.
4.25% 4.29% $0 $0 p.a. 95% Go to site More info
UBank UHomeLoan Variable Rate - Standard Variable Rate (Investor with Investor Offer Interest Only)
Pay interest only repayments with this special offer for investors.
4.24% 4.24% $0 $0 p.a. 80% Go to site More info
Bank Australia Basic Home Loan - Investment Variable
An investment loan with $0 ongoing fees and borrow up to 95% LVR.
4.54% 4.58% $595 $0 p.a. 80% Go to site More info
NAB Tailored Fixed Rate Home Loan - 2 Years Fixed (Investor)
Lock in your investment fixed rate for two years. 250,000 Velocity Frequent Flyer point offer, conditions apply.
4.00% 5.27% $600 $8 monthly ($96 p.a.) 90% Go to site More info
IMB Essentials Home Loan - LVR <=90 (Investor Only)
A competitive home loan for investors.
4.09% 4.09% $0 $0 p.a. 90% Go to site More info
Bankwest Complete Home Loan Package Fixed - 5 Year Fixed Rate LVR <90% (Investors)
Package all your financial needs with this 5 year fixed rate package home loan for investors.
3.98% 4.62% $0 $395 p.a. 90% Go to site More info
NAB Tailored Fixed Rate Home Loan - 3 Years Fixed (Investor)
A 3 year fixed rate for your next investment purchase. 250,000 Velocity Frequent Flyer point offer, conditions apply.
3.99% 5.15% $600 $8 monthly ($96 p.a.) 90% Go to site More info
NAB Choice Package Variable Rate Home Loan - $250k to $749,999  P&I (Investor)
An investment loan offered by NAB with $0 application and monthly service fee and $0 annual credit card fees. Enjoy an interest rate discount for variable rate home loans.
4.55% 4.94% $0 $395 p.a. 90% Go to site More info
UBank UHomeLoan Variable Rate - Standard Variable Rate (Investor)
Get your next investment with this standard variable home loan.
4.46% 4.39% $0 $0 p.a. 80% Go to site More info
NAB Choice Package Variable Rate Home Loan - Up to $250K P&I (Investor)
An investment package loan with $0 application and monthly service fee and $0 annual credit card fees.
4.80% 5.19% $0 $395 p.a. 90% Go to site More info
UBank UHomeLoan - 5 Year Fixed Rate (Investor)
Lock in a 5 year fixed rate on your investment loan and pay no ongoing fees.
4.27% 4.35% $395 $0 p.a. 80% Go to site More info
NAB Choice Package Fixed Rate Home Loan - 4 Years (Investor)
4 years fixed package with $0 application fee and borrow up to 95% LVR.
3.99% 4.91% $0 $395 p.a. 90% Go to site More info
ING DIRECT Fixed Rate Home Loan - 3 Year Fixed Rate (Investors)
Enjoy a competitive 3 years fixed rate with $0 ongoing fee.
3.99% 4.43% $499 $0 p.a. 95% More info
Commonwealth Bank Wealth Package Fixed Home Loan - 2 Year Fixed (Investor)
Enjoy a 2 years fixed rate with great discount and savings with $0 upfront establishment fees and $0 annual credit card fees - all for an annual package fee of $395.
4.19% 5.25% $0 $395 p.a. 95% More info
Westpac Rocket Investment Loan - Principal and Interest
Use Westpac's variable home loan to purchase your next investment property.
5.56% 5.70% $600 $8 monthly ($96 p.a.) 95% More info
St.George Portfolio Home Loan With Advantage Package - $500k to $749k (Special Discount)
Pay no application fee when you package your equity loan with St.George's Advantage Package.
4.79% $0 $395 p.a. 90% More info
Westpac Flexi First Option Investment Loan  - 3 Years Introductory Special Offer P&I
A special discounted variable interest rate for you next investment purchase.
4.19% 4.56% $0 $0 p.a. 95% More info

As a home loan investor, it is critical that you research, understand and compare the different features of loan packages to uncover the best loan options for you. In doing so, you will benefit from significant cost savings and better financial management.

Belinda Punshon

Belinda is a journalist here at finder.com.au. Specialising in the home loans and property sections, she is passionate about helping Australians improve their financial wellbeing.

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