Why your first home loan should have these 5 features

thinking girlFeatures 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.

Redraw facility vs offset account

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.

How discharge fees for home loans work

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

Home loans with no ongoing fees

5. LMI Charges

There are two ways that you can avoid paying 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 need 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.

Buying your first home? Find the right home loan here

Use the table below to start comparing home loans

Rates last updated June 18th, 2019
$
Loan purpose
Offset account
Loan type
Repayment type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.59%
3.59%
$0
$0 p.a.
80%
Enjoy flexible repayments, a redraw facility and the ability to split your loan. Plus, pay no application or ongoing fees. UBank will cut its variable rates for new and existing customers on June 28, making this rate even lower.
3.47%
3.48%
$0
$0 p.a.
90%
Get a low interest rate loan with no ongoing fees. Plus you can make extra repayments and free redraw online. Available with just a 10% deposit.
3.39%
4.41%
$300
$10 monthly ($120 p.a.)
90%
A low fixed rate loan that lets you borrow up to 90% of your property's value.
3.54%
3.54%
$0
$0 p.a.
80%
Low fee loan with extra repayments. Pay no application and ongoing fees and take advantage of split and redraw options.
3.57%
3.61%
$0
$0 p.a.
95%
A simplified mortgage with a low interest rate and a redraw facility. Approval fee waived for a limited time.
2.99%
4.40%
$0
$395 p.a.
90%
Loans over $150000 get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.
3.63%
4.85%
$0
$0 p.a.
90%
A low fixed rate package loan that's available with a 10% deposit.
3.65%
3.66%
$500 (if over 80% LVR)
$0 p.a.
80%
A competitive variable mortgage for home buyers. This loan has flexible repayments and an optional redraw facility.
3.74%
4.13%
$0
$349 p.a.
90%
Get a sharp rate plus package discounts and a 100% offset account.
3.44%
3.48%
$0
$10 monthly ($120 p.a.)
80%
Get a competitive variable rate and a 100% offset account.
3.64%
4.63%
$300
$10 monthly ($120 p.a.)
90%
Low fixed rate loan for home buyers. Available with a 10% deposit. 100% offset account attached.
3.24%
3.88%
$395
$0 p.a.
80%
A competitive fixed interest rate product with no ongoing bank fees.
3.79%
4.22%
$0
$395 p.a.
80%
Unlock a range of savings with this competitive package home loan offer. Offset account and redraw facility included.

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Important Information*
Logo for UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers, P&I Borrowing over $200,000
UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers, P&I Borrowing over $200,000

Take advantage of a low-fee mortgage with a special interest rate of just 3.59% p.a. and a 3.59% p.a. comparison rate.

Logo for HSBC Home Value Loan - (Owner Occupier P&I)
HSBC Home Value Loan - (Owner Occupier P&I)

Get a low interest rate loan with no ongoing fees. Plus you can make extra repayments and free redraw online. Available with just a 10% deposit.

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2 Responses

  1. Default Gravatar
    karenMay 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

    • Avatarfinder Customer Care
      BelindaJune 1, 2015Staff

      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.

      Thanks,
      Belinda

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