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.
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.
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.
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.