Home loan features
When choosing a home loan, the interest rate is not the only consideration; other features associated with your loan can also be important.
All-in-one home loans
All-in-one home loans use your savings to reduce the interest charged on your home loan balance, which in turn reduces the overall cost of your home loan.
Also known as a home equity loan, all-in-one loans are a combination home loan and daily transaction account in one. They work by depositing your salary and other income directly into your home loan account, and then as you need money, you withdraw it via ATM, EFTPOS or credit card. You can also set up direct debits from your All-In-One account just like a regular transaction account.
Any leftover funds surplus to your repayment requirements at the end of the month are credited against your home loan balance, reducing the interest charged.
An all-in-one home loan suits only disciplined borrowers able to stick to a budget or seasoned investors. The interest rate on all-in-one loans may be slightly higher than the standard variable rate and you may also be charged a monthly access or account fee.
All-in-one loans are similar to line of credit loans and offset accounts. To assess your requirements and to negotiate a competitive deal, talk to your Loan Market mortgage adviser .
A redraw facility allows you to access additional funds paid into your home loan if you need extra money, up to the amount of the additional repayments. This feature is generally not available with fixed-rate home loans.
This facility allows you to make extra repayments on your home loan, effectively reducing the interest charged and the length of the loan term. Some lenders may limit the total additional amount you can repay within a given period, and additional repayments may not be available or may be capped with fixed-rate home loans.
Many lenders offer either full or partial repayment holidays for specified periods of time. During this time, you don’t have to make home loan repayments, however you will generally still accrue interest on your home loan balance. You may need to make additional payments in advance, a lump sum on return, on increase your home loan repayments to access this feature.
The parental leave feature allows you to reduce or defer repayments for an agreed period of time after the birth or adoption of your child. Interest is generally still charged on your home loan during this period, and there may be a fee charged to use this facility.
Home loan offset account/salary credit
An offset account is a savings account which is attached to your home loan account.
It works by either:
Subtracting your account balance from your outstanding home loan principal when calculating the daily interest charges. For example, if you have a $300,000 mortgage and $20,000 in your offset savings account, you will only be charged interest on $280,000 even though your “loan balance” is $300,000; OR
Applying the interest earned on your account to your home loan balance. From a taxation perspective, interest paid to your savings account is taxable, but the same interest used to offset home loan interest is not, so you effectively save tax and reduce your home loan at the same time.
Look for lenders who offer 100% offset. Also note that some lenders require a minimum balance to be in your account before offset applies. Your Loan Market mortgage adviser will ensure you maximise your savings with the right account set-up.
Salary credit works in a similar way to offset, by allowing you to pay your salary directly into your home loan account. You then redraw funds as you need them to pay day-to-day expenses. With interest calculated daily, this effectively reduces the principal amount owing for the time your salary is in the account, thereby reducing the amount of interest paid.
Loan portability allows you to transfer your exiting home loan from your current property to a new property, without the need to refinance. This can save you money on application and legal fees.