Loan Features Explained
It’s no secret that everyone has different financial circumstances and goals. Whether you’re taking your first step in to the property market, or have an aggressive investment strategy, no two applications are the same. It’s important to understand the different loan features available to you.
With access to many hundreds of loan products there is a wide array of features for different situations. Understanding these features can help you better manage your finances and even pay off your mortgage faster. Here we look at the different loan features and explain them in more detail.
The majority of lenders typically offer professional packages. With this option you are required to pay an annual fee but in exchange for different benefits. Dependent upon the lender, this could be anywhere form $250 – $395 per annum.
Benefits you may receive could include:
- Waiving of fees, such as application fees, valuation fees and monthly account keeping fees.
- Fee free Offset account(s)
- Fee free Credit Card
Paying only the minimum is enough to meet your repayment obligations. But it also means paying more in interest over the life of the loan. Making extra repayments allows you to pay more of the Principal debt, potentially saving you thousands of dollars in interest. For example, paying an additional $100 per week off a $300,000 loan on 4% interest would save you $85,000. You’d also pay the loan off 10 years faster. Check out our calculator page to see how this works.
Emergencies happen. Your roof springs a leak, your car engine blows up. You need cash now. Redraw is essentially the result of making Extra Repayments on your loan. If you have made $20,000 in extra repayments on your loan, you have access to these funds whenever you want. It’s basically a savings account that is reducing the interest you pay on your home.
It’s important to note that Redraw is ordinarily not available on Fixed rate loans. To get around this, perhaps consider Splitting your loan.
One feature you can benefit from is loan splitting. You can fix a portion of your loan and have the rest as a variable rate. This gives you the security of knowing what the fixed repayment will be, whilst also allowing you the flexibility of making extra repayments and having access to redraw on the variable component.
An offset account is a fully transactional account you link to your home loan. It effectively reduces the amount of interest you pay. The balance in this account is offset daily against the outstanding loan. If you have a mortgage for $250,000 and you have $15,000 in an offset account, you only pay interest on the remaining balance or $235,000.
The term of a home loan is typically between 25 & 30 years so it is common for homeowners to move whilst still paying off the loan. Loan portability is a feature on many loans that lets you keep and transfer your loan to your new property.
Important to note that there can often be many conditions with this feature such as property value, location & loan amount. It’s likely that fees will also apply.
As the name suggests you only pay the interest due each month for a set period of time. Paying only the interest means that monthly repayments are lower than a standard loan. Once the Interest Only period expire, repayments will revert to Principal & Interest & will increase to cover interest and principal.
Within the current lending environment, interest only loans are more commonly available for investment loans. Increased scrutiny means you must demonstrate in detail the benefit you would receive from having your Primary Place of Residence set up as interest only.
If you have any questions regarding these, or any other loan features, the team at WFS are always happy to help.
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