There are a few features that you can choose from when you select a home loan. Make sure that you select loan options and features to suit your needs.
Here is a guide to a few common loan features.
Interest only repayments
You only pay the interest on the loan, not the principal, usually for a term of one to five years. At the end of the interest only term, you then have pay off the principal in the remaining term. Some lenders do offer a further extension on the interest only term. The monthly repayments are lower because you are not paying the principal. Investors prefer this option when they want to hold on to the property for a short term and then sell to achieve capital growth.
When you contribute more than the required repayment, then it reduces the number of years that you pay off your loan and you also have the added benefit of saving interest. Making extra repayments regularly, even small ones, can help you pay off your home loan quicker.
When you contribute extra money into your home loan, you have an option to withdraw the extra contributions at any time. The extra money forms the redraw. Some lenders may charge a fee for withdrawal and may also have a minimum withdrawal limit.
This is basically a savings account linked to your home loan. It forms a part of the professional package. Any money parked in the offset account offsets against the balance of your home loan. Lenders generally calculate interest on a daily basis and it is paid weekly, fortnightly or monthly. You have access to your money through the usual ways – EFTPOS and ATMs.
The difference between redraw and offset is that with redraw you have to physically transfer extra cash to your home loan whereas with offset account, any money in the offset account automatically offsets the home loan balance.
When you sell one property and buy another, you can take your home loan with you. This saves you set up charges but you may incur other charges.
Weekly, fortnightly or monthly repayments?
With weekly or fortnightly repayments, you make repayments more frequently and hence you can save interest. When you opt for fortnightly repayments, you make one extra repayment per year and this works even better.
Lenders allow to set up direct debit with home loans. All you need to do is make sure that money is available in the account and you don’t have to worry about making repayments.