Why your first home loan should have these 5 features

Why your first home loan should have these 5 features

Rates and Fees verified correct on October 28th, 2016

Features to help you choose the right first home loan

From deposits, to monthly repayments and interest rates, taking out your first home loan can be daunting. That's why we've identified five features that should be on your checklist if you're taking out your first mortgage.

Take these features into consideration and you'll end up with a competitive home loan that allows you to minimise the interest payable on your loan and reach home ownership sooner.

1. Redraw Facility

A redraw facility allows you to withdraw additional repayments that you have already put towards your home loan.

Redraw facilities provide you with flexibility to put as much extra money as you like towards your loan, with the peace of mind in knowing you can access it at any time. These facilities also encourage you to put more money towards the loan, so for those budget conscious home buyers, you can think of it as ‘saving for a rainy day.’

Redraw facilities, in conjunction with making extra monthly repayments, enable you to pay less interest over the life of the loan.

Example: Using our extra repayment calculator, we can work out how much a first home buyer would save on a loan with a redraw facility which allows extra repayments compared to a loan that does not allow for extra payments. For a property valued at $400 000 with 5% interest over 30 years, you could potentially save $57, 679.14 in interest and shave a total 4 years and 7 months off the term of your loan.

2. Low Discharge Fees

A discharge fee is charged upon full payment of the home loan, or at the end of the loan. The discharge fee is designed to cover the costs that the lender will incur when you terminate your account.

Keep an eye out for lenders offering low or no discharge fees, as this will provide you with greater flexibility to switch between lenders should your situation change or should you find a more competitive offer.

The government introduced a mortgage exit fee ban on all new variable home loans taken out after July, 2011. While this improved the situation for those taking out a variable rate loan, these fees are still applicable for fixed rate loans.

As a first time home buyer, you should be careful of high discharge fees that can be incurred if you want to pay off your home loan ahead of time, or want to refinance an existing loan. In particular, you should be skeptical of these exit fees for loans that offer low or no upfront fees.

Example: Depending on the lender and type of loan, exit fees may be charged at 1-3% of the amount outstanding, or they may be a flat fee ranging between $150-300.

3. Low Rates

To find a low interest rate loan, start comparing the interest rates and loan features of several Australian home loans in the table provided on this page. Comparing these home loans these side-by-side will allow you to easily identify the most competitive rate that will suit your needs.Whether you’re purchasing a home as an investment or a residential property, a low interest rate will see you pay less towards repayments, reducing the time required to pay off your loan and the total interest you’ll repay.

Be sure to carefully read the terms and conditions of loan packages, as many low interest loans may only offer a competitive rate for an introductory period, for instance for the first 3 months since your application.

Using the comparison rate as a starting point for comparing different home loan rates is a great start. The comparison rate is a percentage amount calculated by adding together the interest rate, plus any additional fees and charges associated with the loan. The total figure is then converted into a percentage rate to highlight the true cost of the loan. By displaying the comparison rate, lenders are unable to hide any fees, charges or other costs.

It is a government requirement that all lenders use the comparison rate to more accurately reflect the real cost of a home loan.

However, it is important to understand the relative cost of fees in the comparison rate. That is, the fees included in the comparison rate will become less significant as your loan amount increases.  For example, for large loan amounts, such as $600,000 over 30 years, the interest rate becomes a more important consideration because the annual fee, for instance, becomes a much smaller percentage of the overall loan cost.

More: You can use our comparison table to easily compare home loans based on the comparison rate.

comparison rate table

4. No Ongoing Fees

Buying your first home can be challenging enough without having to cough up for extra account-keeping fees. When combined with the right features, loans with no ongoing fees are a great option for savvy first time home buyers. This is because they reduce the cost of your loan while often providing competitive rates that enable you to control your repayments.

Loans with no ongoing fees allow you to pay your upfront costs, such as application fees, without having to worry about any other costs creeping up on you throughout the life of your loan.

Typically, many lenders will charge ongoing monthly fees to maintain your home loan account or to pay for additional 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 you are avoiding. In many cases, a loan might waive monthly or annual fees, but still charge fees for offset or redraw facilities, which could add a considerable cost to your home loan.

More: Our comparison table has a column you can sort through to identify ongoing fees when comparing different products.
Ongoing fees table

5. LMI Charges

There are two ways that you can avoid paying LMI:Lenders Mortgage Insurance (LMI) is a one-off insurance payment that protects your lender in the event that you default on your loan. LMI is typically paid when the Loan to Value Ratio (LVR) is 80% or more. That is, when 80% or more of the property is borrowed.

However, LMI may apply to properties below the 80% LVR ratio if the bank believes you’re a greater risk, for example if you’re a self-employed borrower.

  • Save 20% or more as a deposit;

Saving 20% of the value of a property is a difficult task for many first home buyers. In Sydney, to buy an average unit valued at $400 000, you’d require a deposit of $80 000. While this seems like an unrealistic option for first time home buyers, LMI provides an avenue for those who are unable to find a guarantor.

  • Find a guarantor;

A guarantor is a close family member, such as your parents, who assume financial and legal responsibility for a portion of your loan, allowing you to borrow more or bulk up your deposit. The guarantor is not liable for the full amount of the loan, but a portion of the loan. This allows you to borrow more than the value of a property to cover expenses.

More: Compare home loans which allow you to apply with a guarantor.

Top Home Loans for First Home Buyers

Rates last updated October 28th, 2016
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Product nameInterest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment
HSBC Home Value Loan - Resident Owner Occupier only
Enjoy the low variable rate with $0 ongoing fee and borrow up to 90% LVR.
3.55% 3.57% $0 $0 p.a. 90% Go to site More info
3.64% 3.64% $0 $0 p.a. 80% Go to site More info
ClickLoans The Online Home Loan - Owner Occupier ≤ 80% LVR
Enjoy a competitive interest rate when you have a deposit of at least 25%.
3.69% 3.69% $0 $0 p.a. 80% Go to site More info
Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150,000+ Owner Occupier)
Apply for a new owner occupier loan or refinance from another lender and receive this discounted rate.
3.85% 4.23% $0 $395 p.a. 95% Go to site More info
Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed ($150K+ Owner Occupier)
Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.
3.59% 4.42% $0 $375 p.a. 85% Go to site More info
ME Bank Flexible Home Loan Fixed - 3 Year Fixed Rate (Owner Occupier)
A competitive 3 year fixed rate with a redraw facility and split loan options, plus no application fee.
3.69% 4.62% $0 $0 p.a. 95% Go to site More info
Newcastle Permanent Building Society Fixed Rate Home Loan - 2 Years Fixed (Owner Occupier)
Enjoy a low interest rate and borrow up to 95% (with LMI) of your home value.
3.69% 4.76% $0 $0 p.a. 95% Go to site More info
Bankwest Complete Home Loan Package Fixed - 5 Year Fixed Rate LVR <90% (Owner Occupier)
Get the security of knowing your repayments with this 5 year fixed rate package home loan.
3.98% 4.35% $0 $395 p.a. 90% Go to site More info
NAB Base Variable Rate Home Loan - Owner Occupier (P&I)
A competitive no frills home loan with no application fees for a limited time. 250,000 Velocity Frequent Flyer point offer, conditions apply.
4.10% 4.14% $0 $0 p.a. 95% Go to site More info
AMP Essential Home Loan  -  Owner Occupier
Take advantage of a redraw facility, competitive variable rate and no application or settlement fees for a limited time.
3.98% 4.00% $350 $0 p.a. 90% Go to site More info
Newcastle Permanent Building Society Fixed Rate Home Loan - 1 Year Fixed (Owner Occupier)
Get a short term fixed rate for that investment property with no application or ongoing fees.
3.69% 4.87% $0 $0 p.a. 95% Go to site More info
IMB Budget Home Loan - LVR <80% (Owner Occupier)
A competitive budget rate without any unwanted bells and whistles.
3.87% 3.92% $445 $0 p.a. 80% Go to site More info
Bank Australia Basic Home Loan - Variable (Owner Occupier)
A competitive variable that allows borrowers to borrow from a minimum of $100,000 and $0 ongoing fee.
3.59% 3.60% $0 $0 p.a. 95% Go to site More info
Australian Unity Health, Wealth and Happiness Package - (Owner Occupier)
Get a 0.60% discount on your rate, a 100% offset account and no ongoing fees.
3.99% 4.02% $600 $0 p.a. 90% Go to site More info
CUA Fresh Start Basic Variable Home Loan - Owner Occupier
A basic mortgage available only to customers who switch their everyday banking to CUA.
3.89% 3.94% $600 $0 p.a. 90% Go to site More info
Newcastle Permanent Building Society Fixed Rate Home Loan - 3 Years Fixed (Owner Occupier)
Split your loan for free with one of the lowest fixed home loan rates.
3.79% 4.68% $0 $0 p.a. 95% Go to site More info
IMB Essential Home Loan - LVR < 80% (Owner Occupier)
Get a discount on your rate and flexible repayment options with this loan.
4.09% 4.09% $0 $0 p.a. 80% Go to site More info
NAB Choice Package Variable Rate - $250k to $749,999 P&I (Owner Occupier)
A great variable package from NAB which includes offset and redraw features. No application fee.
4.40% 4.79% $0 $395 p.a. 95% Go to site More info
NAB Choice Package Home Loan - 2 Year Fixed (Owner Occupier)
A fixed rate package loan with flexible repayments options. 250,000 Velocity Frequent Flyer point offer, conditions apply.
3.75% 4.87% $0 $395 p.a. 95% Go to site More info
St.George Basic Home Loan - Promotional Rate (Owner Occupier, P&I)
A no frills loan with a competitive rate and a maximum LVR of 95%.
3.98% 3.99% $0 $0 p.a. 95% More info
Westpac Flexi First Option Home Loan - 3 Years Introductory Special Offer (New Owner Occupier, P&I)
A limited time deal for new owner occupiers. Advertised rate includes 1.03%p.a. discount for the first two years.
3.89% 4.19% $0 $0 p.a. 95% More info

Save money by avoiding additional costs

If you’re a first time home buyer you should be conscious that there are often additional costs associated with purchasing a property. The most expensive fee that you’re likely to incur is state government stamp duty if it’s applicable in your location, so make sure your budget takes this into account. Also, don't forget about building inspection costs.

Understanding the features of a home loan will be invaluable to helping you make the right investment choice.

Happy first-time home buying!

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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Related Posts

HSBC Home Value Loan - Resident Owner Occupier only

Enjoy the low variable rate with $0 ongoing fee and borrow up to 90% LVR.

ME Bank Basic Home Loan - LVR <=80% Owner Occupier

A low variable rate loan with no application or ongoing fees.

CUA Fresh Start Basic Variable Home Loan - Owner Occupier

A basic mortgage available only to customers who switch their everyday banking to CUA.

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2 Responses to Why your first home loan should have these 5 features

  1. Default Gravatar
    karen | May 26, 2015

    you say a redraw facility saves more interest than an offset account, but I thought the offset account is as if that money is on your mortgage so how can it cost more than having a redraw and putting that extra money straight onto yoru mortgage

    • Staff
      Belinda | June 1, 2015

      Hi Karen,

      Thanks for your enquiry.

      A redraw facility enables you to borrow money you’ve already repaid. For instance, if your minimum monthly loan repayments were $500 and you paid $700 each month for 6 months, you’ll have paid an additional $1200 on top of your required monthly repayments. The redraw facility allows you to access that extra money whenever you like which provides you with increased flexibility.

      Whereas an offset account is a transaction account that reduces the interest payable on the loan by the amount held in this account. For example, a 100% offset account with $500 000 on a loan of $300 000 would see interest-only calculated on a balance of $250 000. On a loan of 5.5% over 30 years, this could amount to a saving of $90 000 in interest, with seven years cut from your loan.

      I hope this clarifies things for you.


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