You could fill up a dictionary with all the jargon involved in taking out a home loan! But this clearly isn’t putting anyone off, given there were almost 54,000 loans taken out for owner-occupied housing to April 2015, according to the Australian Bureau of Statistics.
Understanding some of the most common features of a mortgage can help you compare your choices and make a solid decision you can be confident in – and a little help from your mortgage broker won’t go astray, either. Here are three features to keep in mind when making your decision.
1. Interest rates
Interest rates aren’t just a headline – they can be one of the most notable elements of your loan. You’ve typically got two choices, fixed or variable. As the name suggests, with a variable rate, the amount of interest you pay on your home loan goes up and down, depending on what the lender decides and what market forces (usually the Reserve Bank’s official cash rate) are doing.
This can give you a fair bit of flexibility, and can actually be to your financial benefit. If rates take a dive, you can pay less interest, save more and cut down on the loan term. At the same time, you can end up with higher interest repayments – a risk that you’ll need to weigh up.
If you want a bit more predictability, a fixed-rate home loan could be an option. This mortgage comes with a fixed rate for a set period of time, giving you certainty on repayments and budgeting because your loan isn’t at the whim of change.
However, you might end up paying more if interest rates drop below the one set on your mortgage – and there may be sizeable charges if you want to settle early, or consider home loan refinancing.
2. Redraw facilities
Some home loans come with redraw facilities attached, which basically means you can withdraw money from your mortgage account that you’ve already used to pay off your loan. To be able to use the redraw facility, you need to make extra payments – for instance, regularly settling an extra $50 a month.
The big plus of this facility is the compound interest you can gather on your extra repayments, while it can also set you up with a contingency for paying off future debts. Before you sign on, be sure of the extra costs – there could be a few fees and charges for withdrawals.
3. Offset account
What about an offset account with your mortgage? Usually, the amount of payable interest is calculated against the balance on your loan. But with this feature, the sum in your account is offset against your outstanding balance, which can actually reduce the amount you pay in interest on the loan – and trimming down the length of your mortgage term.
Be aware, though: It’s a good idea to look for an interest rate equal to that of your mortgage to make the most savings.
You can contact a Smartline Mortgage Adviser on 13 14 97 for home loan advice. Or complete our call request form and we’ll call you!
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.