Modern day mortgages have a seemingly endless array for features designed to help you manage your loan and pay it off faster than the standard 30 year term.
Most Australians have very little understanding of how these features work and which ones would be helpful for them.
Our mortgage brokers will help you to choose the right loan features and consequently a loan product as part of their Preliminary Assessment.
This page is designed to help you to understand what these features mean and how they can help you.
Home loan redraw gives you the power to withdrawal any additional repayments which were made on top of the minimum loan repayment.
For example, if you had been making an additional repayment of $200 on a monthly basis, then after a year you will be able to redraw $2,400. Effectively any additional payments you have made can be accessed when you need them.
This is a great way to keep funds on standby or to save for a holiday or car in your loan account rather than in your savings account.
However, please be advised that some lenders may charge a fee for a loan redraw and in the case of fixed rate loans, redraw is often not available.
With this feature you have the ability to make extra repayments into your loan on top of their minimum loan repayment. E.g. If your minimum monthly loan repayment is $2,000, but instead of paying the minimum figure you pay $3,000 per month into your loan. This means that they have made an extra repayment of $1,000 into the loan.
Extra repayments can be made on a regular basis by changing the amount that the banks direct debit from your account. Alternatively you can make extra repayments on an irregular basis by transferring money in whenever you have it available.
Please note that for fixed rate loans, extra repayments is often not available.
Professional package discounts
A professional package is where you pay one annual fee in return for discounts on a range of products and services from your lender. In most cases you can receive the following benefits:
- Waived application fee.
- Waived monthly fee on your loan.
- Waived valuation fee.
- Interest rate discounts (0.5% to 0.9% depending on the lender, loan size & the market).
- Waived monthly fee for your cheque account.
- Waived annual fee for a credit card with rewards.
- Discounted insurance products.
- Special service / higher level of service from the bank.
In most cases, a professional package is suitable for large loans (>$250,000) and is almost always used when we negotiate a special discount for customers borrowing over $1,000,000. They can also be suitable for people who have multiple products with the one bank.
With an interest only period you will just pay the interest due each month, and not any of the principal itself. The benefit of doing this is that you keep your repayments to an absolute minimum, however you will not pay off the loan unless you make extra repayments. Interest only periods are usually for up to 5 years, however some lenders will consider 10 years or even 15 years!
With loan portability you can move your loan onto another property. Normally this is used when you sell your home and buy a new home. In most cases for this to work the settlements must occur on the same day. This can avoid the need to apply for a new home loan when you move house.
A repayment holiday can be used if your circumstances change. Normally this is due to the arrival of a new baby, and consequently a reduction in income for your family due to taking time off for maternity leave. Typically you can reduce or avoid making repayments for up to six months, during which time the interest adds onto your loan.
When you return to work you can then restart your repayments and eventually increase your repayments to catch up to where you were before.
This feature allows your loan to have multiple loan accounts. The most common use of this is for people to setup a loan as half fixed, half variable. This allows them to make extra repayments on the variable portion, however to partially protect themselves from rising interest rates.
You can also use multiple loan accounts to keep track of loans used for different purposes. For example if you buy shares and use your home as security. You can have a separate account for this purpose so that you can show the tax office which part of your loan is tax deductible.
100% offset account
We have covered this in more detail on our 100% offset account page.
Line of Credit (LOC)
We have covered this in more detail on our Line of Credit page.
Find out more
Our mortgage brokers are here to help you make the right choices with your home loan. If you aren’t sure which loan features you need, or need more information about other loan features not listed here then please contact us and we’ll help you to decide.