Borrowing Power

While home loan features can save you thousands, they can also be tricky. You could, for instance, wind up with home loan features that you don’t use and be saddled with a higher interest rate and fees to boot.

Start by asking a mortgage broker to conduct an analysis of your finance needs. That will ensure that you get a more personalised package with the home loan features that you actually  need.

Extra Repayments

This home loan feature is one way to reduce your interest bill. It works because your interest is calculated daily on the amount you owe. So if you make extra repayments, particularly at the begining of your mortgage, then the amount that your interest is calculated on is reduced, and thus your interest bill is lower. Points to note:

• Make sure that you’re home loan allows you to have an extra repayments feature
• Find out if there are any fees involved

Redraw Facility

With this home loan feature, you can make extra repayments and then redraw (withdraw) it when you need it. This means you can leave your money working to pay off your mortgage and withdraw it on a ‘rainy day’.
With redraw facilities:

• You will be charged a fee for each withdrawal
• There is a minimum amount that you are allowed to redraw
• Your lender may set a limit on the number of times you can redraw annually

Offset Accounts

An offset account is a savings account that is linked to your mortgage. Your salary and other cash can be deposited into the account and that money counts towards your home loan and thereby reduces your interest bill. The offset account also functions like your regular savings account, so you can still access it via Eftpos, ATM and pay bills. Generally, offset accounts:

• charge a higher rate of interest
• may incur fees and charges
• the offset may be partial, meaning that a lower rate is earned than what you are paying. To avoid this, ask your mortgage broker about 100% offset accounts.

Interest Only Payments

With this home loan feature, you only pay back the interest on your mortgage. That way you are able to invest the principal (the amount you borrowed) in something else.