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Features to make or break a home loan

Banks will fill your eyes with stars and claims to make your head spin.  Make sense of what is actually important to your home loan, and what is just a shiny new toy that won’t make your life cheaper or your loan simpler.


Extra Repayments

Banks will usually limit the amount of extra payments you can make.  Look for a loan which gives you the option of fee free repayments.  Early payments can be extremely useful in bringing down your interest repayments, and can save you thousands, if not tens of thousands of dollars, on your mortgage over the life of your home loan.

The big question is whether to get extra repayments or an offset account.  You’ll have to crunch some numbers here, as it’s very specific to your particular deal and savings.  The main question is whether the fees for having extra repayments is less than having an offset account.

Offset Account

This will link your savings account to your mortgage repayments.  Your savings will be deducted from your overall home loan, greatly reducing your interest repayments.  This is more important if you have a medium to large amount in savings, as the costs in maintaining an offset account might be greater than the savings if you have a lower figure in your bank account – lower savings means you’re shaving less off your interest.

An example would be if you have a $300,000 loan, but $20,000 of savings in your offset account, you’re only being charged interest on $280,000.  The savings can shave years and thousands of dollars off your loan over the lifetime of your mortgage.

An offset account can often serve similar goals as extra repayments and redraw facility, so keep in mind your exact needs.  If you want to pay off your loan early, you’ll still need extra repayments.

Redraw Facility

A redraw is when you’re able to take back extra payments you’ve made into your home loan when you need it.  This is particularly useful if you can make extra payments, but need it for a once off when an unexpected large bill crops up.  This shouldn’t be used regularly, as there are often fees attributed with this.

Key features to look out for are:

  • Redraw fees
  • Amount of free redraws allowed per year
  • Maximum amount of redraws
  • Minimum and maximum redraw amounts


If you think you’ll be moving houses within the life of your mortgage, this is a must.  Portability allows for you to change the house you’re using for your mortgage.  If you change your loan without portability, you’ll be liable for break costs.

Remember, you may be living at your new home for 25 to 30 years.  Try to plan ahead – if you’re planning on having a family or your family to grow, you might need to add portability as you’ll need a bigger house at some point in the near future.

Keep an eye on the features of the portability, as they may be restricted if the value of the new property is within a certain range of the old property.

You’ll be locked into the same interest rate with the new loan, too.

Simultaneous settlement is usually required, to, so both the sale of your old property and the purchase of your new property need to be aligned.  This can be very tricky when both other parties can have their own requirements.

Buying to invest vs buying to live

Buy or invest.  The Australian property market can be a nightmare if you don’t know what to do.  So what do you do with your hard earned money?  If you’re staying with family, you can safely invest while getting rental returns and not have to worry about your own income.  Not everyone has this luxury, however, and we need somewhere to live ourselves.

house in human hands

Let’s break down the two options and see what suits you best.

Buying to live

If you’re buying for yourself, you’re considered an owner occupier.  There can be personal reasons for buying to live.  If you own the place, you’ll have a lot more long term security.  If you’re just starting a family, your children will want to go to the same school, make friends.   Your job security is very stable and you want to live in the area.

The main calculation for owner occupiers is much simpler than for investors renting themselves.  Your salary minus the mortgage interest repayments.

After that, you need to factor in your cost of living, and budget accordingly.  Remember to always give yourself a buffer, and consider non-monthly expenditure, such as car costs (services, registration, insurance), school fees (if you have children) and so on.


Buying to invest

If you’re buying to invest, you’re also going to have to find somewhere to rent yourself.   Buying to invest can be slightly trickier, because if you want to take advantage of government incentives such as the first home buyers grant, you need to be living in the property yourself for 6 months.  If you’re already currently renting, you’ll have two properties, which equals twice the rent.  If you live exclusively in your new place, you’ll have to move out of your current residence, and find a new one once you’re ready to move out again.

If you’re not sure of where you want to live, or you might be moving around a lot for work (or a long holiday), renting might be the way for you, as you have a lot more flexibility and no need for permanence.

Buying to invest can also be a good idea if you have the extra capital, too.  If you have the cash to invest, you can see good returns and safeguard your money, as it’s a very safe investment.

If you’re looking to invest, one of the main criteria you’re looking at is capital growth and rental yield.  This is purely a money making investment, and the extra features of the house are just there to get you a better return on your money.

The main calculation you’ll have to make is your salary plus the rental return against your rent and your loan/interest repayments.  Again, as before, you’re going to have to factor your regular cost of living expenses to keep up.

Again, make sure you’re factoring in your basic cost of living costs, as well as any expected costs and bills that aren’t regular monthly bills, such as electricity and water, insurance, medical checkups, etc.

Are fixed rate loans dead?

The fixed rate home loan vs the variable rate home loan debate has raged for decades. Recent studies have pointed to the variable rate loan being much more popular. So is the fixed rate home loan heading for an early grave? Or is there more to it? Recent data has shown that fixed rate might be a more viable option than ever before.

Dept Signpost

Fixed rate home loan borrowers got their fingers burned during the global financial crisis, and this has left mental scarring for many who were considering this option. Analysts think, however, that this theory isn’t justified as it will not likely happen with the low rates that are on exhibit at the moment.

With the RBA reserve rate at its record low 2.25% buyers may be tempted towards a fixed rate loan. And with another rate cut expected in May, this may become a trend if the banks decide to follow suit and lower their rates also.

Fixed vs. Variale

The main advantage of a fixed rate home loan is the certainty of repayments. You won’t get swept up in the rollercoaster that is variable rate and be left with interest shock. If the reserve bank raises interest rates, especially sharply, your variable loan may leave you struggling with the increased repayments. If interest rates stay at a similar rate or drops, variable home loans will come out on top.

If you’re looking to sell your home, variable is the way to go, as with a fixed rate loan, you’re locked in. It also has the flexibility to change to a fixed rate loan whenever you’d like, whereas you can’t opt out of a fixed rate loan easily, you usually have to ride out the 1, 3 or 5 year term.

Variable loans also have a lot more flexibility in making extra payments.  Also, repaying the loan early before the loan term expires isn’t possible with a variable rate home loan.

With the market at record lows for both fixed and variable rate loans, while the immediate forecast is for them to stay low, or go even lower, they won ‘t always be. Lenders are urging borrowers to not borrow to capacity as they’ll struggle when the interest rate rises.

At the end of the day, regardless of whether it’s marginally better or not, fixed rate home loans will have a loyal following for those that like to know what their repayments will be up front and can budget for it. With the reserve rate at a record low 2.25%, it would seem like now is the time to switch, but with fixed and variable rate interest rates predicted to go even lower, experts recommend holding off for the short term. If you’re on the fence, you can always go half and half on variable and fixed. Know your options and what’s available.

5 Questions lenders want to ask you

Talking to a mortgage broker or bank/lender can be a big deal. Don´t go around talking to everyone without having a plan. If you say the wrong things to the wrong people, you might find your credit score down in the dumps and a loan much, much harder to get (and a lot worse terms!). Be prepared for what the lenders will ask you, so you can make sure you give them the answers they’re looking for and don’t set off any alarm bells.

Close-up of couple doing finances at home

Your Residential History

To access your responsibility, history of repayments, etc. the lender will want to know how you’re living currently; where you live, how long you’ve lived there, if you’re renting or buying, how much you’re paying, or if you´ve been late on repayments. It helps if you´ve built up some history here, but try to smooth over any problems that can arise in this area. If you´ve been responsible and paid everything on time, you’ll be fine. Lenders are far more likely to be lenient if you have slightly shorter track record in paying for rent or repayments than if you´ve missed payments.


How long have you been at your current job, what industry you’re in, what´s your income, do you have other revenue streams. This is an important section, as they’ll want to make sure you´ll be able to make the repayments for the life of the loan. Again, a good employment history will do wonders here, but it´s a lot more forgiving than if you have a bad residential history. You´ll need documentation to back this up, and they will ask and triple check your information, so don’t try to fudge anything.

Credit History

Credit card scores and health is very important, too. How in check you are with your finances will decide whether a lender will want to give you the biggest loan of your personal life. If you have no previous credit history, consider getting a credit card for a year and pay it off regularly to start building up a credit score. Something easy to do in advance if you’re planning for the future, and a big positive tick next to your name.

Current Financial Obligations

Do you have outstanding student debt? Car loans? These are the things lenders will want to know so they can paint a complete financial picture about the state of your finances. A lot of this will appear on your credit report, so try to be as forthright as you can. Lenders will want to give you a loan, but will try to stop you loaning past your means. Give them all the information you can about what´s coming out of your paycheck before the mortgage repayments can even be met.

Your Savings and Assets

If the bank has some securities with the assets that you have already, or the fact that you´ve been able to budget and save, they’ll feel a lot more confident that you’re going to be able to meet the financial demands of mortgage repayments month on month for the next 20 to 30 years. You don’t need a massive number, but lenders will love to see if you have enough assets or cash to cover the down payment and any closure fees plus a few months of repayments in reserve.

So be ready to answer all of these questions, because the lenders will be armed with your credit history and will know a lot more about you than you realise. Asking for a home loan is something you only want to do once. If you get the interview wrong, other lenders might shut the door on you just because of the negative impact of a failed loan from another lender. Be ready to answer any queries they have on what might stop you from paying a loan. Mortgage brokers can help you get everything on track before you go to the lenders, and know what they want to hear and how to portray any potential bad news, if you want to avoid potential heartbreak and a lot of hassle.