Home Loan Features Explained
Author: Courtney Thomas
These days, with the many different lenders, products and features, choosing a home loan can be overwhelming.
Here, we explain some key home loan features:
- Fixed interest rate
A fixed rate loan may look attractive – the rate is set for a certain period (usually two to five years), which makes repayments predictable. However, fixing your loan generally means you are limited on the number of extra repayments you can make.
Offset Accounts and redraw facilities are usually not available for fixed rate loans.
- Variable interest rate
If you hold a variable interest rate, your rate will change over the life of the loan depending on the economy. If rates go down you’ll benefit from lower repayments, but if rates increase your repayments will too. You do have the ability to make higher and lump sum payments.
Interest is calculated daily so a variable rate can be more beneficial.
- Offset account
You may choose to hold your money in an offset account. Think of it like a bank account. Your salary is deposited into it and you’ll have a debit card for everyday purchases. The offset account is offset daily against your home loan.
For example, if you have a loan of $400,000 and have $20,000 in an offset account, you will only be charged interest on $380,000.
Lenders offer multiple offset accounts and these can assist with your budgeting.
- Redraw Facility
A redraw facility allows you to withdraw any extra repayments you have made. Most lenders offer a redraw facility that can be arranged by phone or online.
- Comparison Rate
All home loan lenders in Australia are required to display a comparison rate next to the headline rate. This combines the interest rate with the common fees (e.g. application and ongoing fees), to show you the ‘true’ cost of the loan. The purpose of the comparison rate is to make it easier for borrowers to compare apples with apples.
For a complimentary appointment with one of our accredited mortgage consultants to understand the features and fees of the loans available to you, contact us today and find the best possible solution to meet your needs.
General Advice Disclosure:
This document contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person.
You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, AMP Financial Planning and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/or a percentage of either the premium you pay or the value of your investment. Please contact us if you want more information.
Case Study Disclaimer:
The Examples is illustrative only and is not an estimate of the investment returns you will receive or fees and costs you will incur.