Home loans are changing with the times. You can now get home loans in a variety of different forms, all with different facilities and features. Deciding which home loan suits your needs can be quite daunting and that’s where sound advice from your professional credit adviser can be invaluable. We’re here to help you sort through all the different home loan options and help you choose the one that’s right for you. But where do you start? What features do you need to consider?
CHOOSING THE RIGHT HOME LOAN
Before you start shopping for a home loan, why not sit down and discuss your personal circumstances, financial situation and goals with us? Once we identify what’s important to you, it will be easier to decide what features and facilities you might need from your home loan.
While the first question some clients ask us is ‘what is the best interest rate I can get?’, choosing your home loan isn’t just a matter of picking the one that has the lowest interest rate. The home loan with the lowest interest rate isn’t always the least expensive option when you take into consideration fees, charges and some of the advantages you might get from a loan with features that better suit your needs. These may include:
- The ability to make additional repayments
- Interest-only options
- Lump Sum Repayments
- Offset Account
- Transaction Account/Credit Card Facilities
- Redraw option
- Split Loan option
Two common facilities that could help you save money on your home loan include transaction or savings offset accounts and redraw facilities. We get quite a few questions about these features, so let’s have a look at these in a bit more detail below.
TRANSACTION OR SAVINGS OFFSET ACCOUNTS
One of the newer and increasingly popular financial products on the home loan market is a transaction or savings offset account and most lenders have one on offer. Whilst they may not come with the lowest interest rate on the market compared to your basic home loan product, they may help you to save money on how much interest you have to pay and may also help you to save on bank fees you would usually pay for your transaction account and credit card.
A transaction or savings offset account can be used like an everyday bank account, but it is linked to your home loan so that the money you have in it reduces the amount of interest you have to pay on your home loan. In other words, the money in your offset account counts against the amount you owe on your home loan – so the more money you have in there, the less interest you have to pay on your home loan!
You use the account like you would your ordinary transaction account – your salary is paid into the account and your spending comes out of it. With good budgeting, you can really make it work to reduce your interest obligation and help you pay off your home loan sooner. This kind of account can also help you save money on overall banking fees as they usually offer fee free use of ATMs, credit cards and more.
A home loan with redraw facilities is a popular choice for many home buyers. It allows you to make extra repayments and gives you the option of withdrawing those extra repayments at a later date if you need the funds.
Usually redraw facilities are only available with variable interest rate loans, as other types of home loans like fixed interest rate home loans or basic home loans do not give you the option of making extra repayments.
Every extra repayment you make to your home loan goes toward reducing your term and therefore the amount of interest you will need to repay over the entire life of the loan. If you make extra repayments diligently every month or even every fortnight, you could save years on your mortgage term and thousands of dollars in interest over time. Even an extra $50 a fortnight could have a dramatic effect!
However, redraw facilities give you a safety net in the event that you should ever need to access the funds quickly. A home loan with redraw facilities can give you almost instant access to your money when you need it – say your fridge goes on the blink or your car needs some major repairs, you’ll know you can get at your money right away.
WHAT TYPE OF HOME LOAN IS RIGHT FOR ME?
There’s a home loan type available for just about any property purchase. If you want a home loan with a low interest rate and no redraw or offset facilities, credit card or transaction account then a basic variable rate home loan may be the right choice for you.
However, if you need to make sure that your home loan repayments will stay the same every month for the foreseeable future then a fixed rate home loan may be your best option.
Variable rate home loans usually come with the best range of features and although your interest rate may go up or down, you can make savings on your home loan by using the features wisely. It’s also possible in many cases to arrange a split home loan, which allows you to hedge your bets on interest rate rises by having part of the loan at a fixed interest rate and part on a variable interest rate.
As mentioned earlier, the first step in choosing a home loan is to talk with us about your personal circumstances, financial situation and goals. Getting to know you and how you will use your home loan will help us to guide you through the maze of choices when it comes to selecting your home loan. If you’d like to find out more, or just chat about your plans, please do not hesitate to give us a call. We’re here to help you get started.
MORTGAGE FOCUS | NOVEMBER 2015
The information provided in this page is general in nature and does not constitute personal financial advice. The information has been prepared without taking into account your personal objectives, financial situation or needs. Before acting on any information you should consider the appropriateness of the information with regard to your objectives, financial situation and needs. You should seek independent advice from your financial adviser before making any decisions.
AUSTRALIAN MORTGAGE AND FINANCIAL ADVISERS (AMAFA)
Phone: 07 3378 2056
Fax: 07 3378 2069